The Goods and Service Tax (GST) aroused a lot of curiosity before its arrival and people across the country are now accepting it with mixed reactions.
The GST is the biggest tax reform that is being carried out in the country.
Like to all other businesses, the GST is likely to have a telling effect on the online services and digital industry.
The purpose of GST:
GST, as you all may be aware, is an effort to streamline the current tax structure by providing uniform structure. Earlier, the tax structure varied from one business to another which now is modified with only one common tax i.e. all the indirect taxes including Vat, Excise tax, Service tax and similar will form into GST. Although there is a disgruntlement in some sectors, the GST will provide a stable and productive economic scenario in the country making the “one nation one tax” a reality.
Impact on the digital market industry:
Input tax credit:
Earlier the advertising expenditure was considered as a manufacturing expense and the manufacturer was liable to pay sales tax, VAT etc on the purchases made on raw material. There was no input credit. Now, after the implementation of GST, the manufacturers, suppliers, e-commerce businesses, aggregators and more can claim an input credit while paying tax on the output (final product). The expenditure thus will drastically come down for the advertisers.
Pre-GST, taxes were being collected in multiple ways. Taxes were levied and collected by central government and state government. The complex nature of business models in which the online e-commerce transactions are done created a lot of ambiguity and disputation. Post-GST the flow of tax will cut down the chaos as well as the costs involved in creating ads.
With the reduced costs, the retailers will save more on their advertising budget and put it back in advertising and gain more exposure in the process.
There is an increase of 3% in the service tax from the earlier 15% to 18% and as per predictions from the industry bigwigs it will not have a significant impact on the market.
Several questions will keep arising in the initial few months. With the increase in content transactions, the implementation process may experience several glitches on the way.
There has been a tremendous growth in the digital space and several businesses are accumulating a decent earning through the social media platforms like Facebook, Twitter, LinkedIn, Yahoo and similar. Many of them are physically located outside the country and are not subject to Indian taxation laws. This is creating a new challenge to the tax laws.
However, the government in the recent budget has decided to implement an “equalization levy” at 6% on digital advertisements. This feature is likely to be extended in a phased manner to cover all the services being availed by the Indian consumer from the online non-resident retailers and sellers.
The equalization levy will have an impact on all the services being offered digitally that may include the online collection of payments, website designing, web hosting, email services, media advertising, blogs, software downloads including songs and movies, online news portals etc.
Meanwhile, the top social media platform, Facebook, has made it necessary for the advertisers in India to update their Facebook account with details of their GST registration number before they continue their advertising on the platform. They will not charge any GST on the Facebook ads. The other social media platforms are also likely to come up with some policy in this regard.
GST is still in its infancy. Brand owners and agencies will adopt a wait and watch policy to get the feel of the new tax reforms.