WHY GST WON'T HURT

Submitted by admin on Mon, 07/10/2017 - 13:13

As we enter H2CY17, the M&E industry is expected to meet the projected growth adex estimates, despite the spill over effects of de-monetization, RERA and lack of clarity in the implementation of GST.

 

TEAM IMPACT

If there is one thing that 2016 will be remembered for, it will be De-monetization. Similarly, it is likely that 2017 will go down in history as the year the Government introduced The Goods and Services Tax, or GST as it is popularly known, that came into effect on July 1. Looking back eight months ago, the M&E industry was growing at a healthy rate on the back of a bumper festival season. That was till November 8, when Prime Minister Narendra Modi announced demonetization and the move resulted in approximately Rs 2,000-2,500 crores being knocked off from the overall adex pie and the effect getting spread across two calendar years.

In simple terms, GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer that is destination-based and levied on every value addition. GST is expected to create a unified common market in India and the move has been greeted with a big thumbs up from the entire business fraternity. However, with GST being implemented amidst a lack of clarity, the question is, will GST have a similar impact on advertising spends in the short-term as demonetization?

The RERA effect

In addition, the Real Estate Regulatory Authority (RERA) Act implemented in May 2017 has resulted in the realty sector, a big spender on Print, scaling back its marketing.  As per the new RERA guidelines, no promoter shall advertise, market, book, sell or offer for sale, or invite persons to purchase any plot, apartment or building, as the case may be, in any real estate project or part of it, in any planning area, without registering the real estate project with the Real Estate Regulatory Authority established under this Act. Each advertisement has to carry the RERA registration number.

Will 2017 reach its projected growth

This leads to the question of how the year will pan out overall in terms of adex and whether the industry will meet the 2017 projections. A quick recap of 2017  projections by leading media agencies show that The Pitch Madison Advertising Report 2017 predicts the growth for the year to be around 13.5%, while GroupM’s This Year Next Year’ (TYNY) 2017, forecasts a growth of 10% and Dentsu Aegis Network's Ad spends forecast Advertising expenditure in India predicts an increase by 13.0% in 2017.

The Agency Take

At this point in time, I believe it will be business as usual. It is too premature to take a call on growth or de-growth in the industry.

Vikram Sakhuja
Group CEO, Madison Media & OOH







In the short run, we will see some impact on some industries on account of GST as the trade had stopped purchases to clear old stocks impacting cash flow for manufactures.  The good thing is that consumer sales weren’t impacted. There might be a temporary slowdown due to cash flow but overall GST is positive.

Ashish Bhasin
Chairman and CEO, Dentsu Aegis Network, South Asia




 

“Right now, we believe we will still meet the projected growth numbers, though we know the first quarter was slow. The second quarter has been much better. We hope that with GST, the third and fourth quarters will continue to be good. I don’t think GST will impact anyone negatively. Ultimately, it will smoothen things up and ease advertisers’ and marketers’ lives. The expectation is that it will help the market grow faster. Most of the big media houses are already GST-ready so I don’t think there will be any problems. We will still stick to the 10% growth estimate that we had given at the beginning of the year.”

Debraj Tripathy
Managing Director, Mediacom South Asia

Unlike demonetization, the impact won’t be visible on day one. However, if there is a botch up in the implementation, one can’t rule out a big impact which may affect the 10% projected growth.

Partha Sinha
 Vice Chairman and MD, McCann WorldGroup






Overall there will be a blip in the short term, a cutting back of spends by clients till the time things are settled, just like demonetization, but it won’t last for more than a couple of months. The festive season is very important for marketers, by that time there will be a lot more clarity ensuring that festive spends are not affected.  The GroupM report which pegged AdEx growth at 10% in my opinion has factored in the GST impact. In the long run it is good to have GST for the industry because companies can pass on the benefit to consumers leading to more advertising.

Subhash Kamath

CEO, BBH India

So will the industry projections hold true and will clients continue to spend? According to Vikram Sakhuja, Group CEO, Madison Media & OOH, From where we stand right now, it’s still unclear if the spends are getting majorly affected. The good news right now is that historically, seasonally July is the least active month unlike November and December (when demonetization happened). The impact of that was definitely more severe. I think this is going to be a wait-and-watch. Right now, it is too early for us to tell whether it will be positive or negative.”

Drawing a parallel to the process in the way demonetization was implemented Partha Sinha, Vice Chairman and MD, McCann WorldGroup says, “We don’t have a very good history of implementation in this country, going by the demonetization experience. So, I am a little afraid that in the short term it may have a bad impact on operations of companies, which will hit advertising spends. The impact may last for a quarter, one month, or even two quarters at worst.”

However, the overall consensus is that in the initial stage, the impact will be limited as companies stock up but in the long run GST will be a big boost for industry and help spur adex.  Ambi M G Parameswaran, Brand Strategist & Founder, Brand-Building.com notes, “There will be some initial issues, but I am sure it will get ironed out soon. When Service Tax was imposed on advertising / agencies, there was a lot of apprehension, but in the long term everyone got used to handling it. There is always a fear that the clients may put the pressure on agencies to absorb it. But since the amounts are huge and clients do get a set-off benefit, there is no fear this time around. Teething trouble yes, but long term gain definitely.”

While acknowledging the slowdown in ad spends in this period P M Balakrishna, Head – Advertising (National Accounts), The Hindu Group is confident about the bounce back and says,The trade and business are aligning themselves for the new tax regime and are in a transitionary phase. This has resulted in a brief slowdown in commercial transactions, triggering sluggishness in the advertising industry. We are bullish in our view on the benefits to the economy and expect the market to bounce back strongly.”
 

Media Take

At present the growth rate is about 7%-8%, but in the next few months it will definitely cross the double digit mark. On the positive side for Television, FMCG clients will definitely save on taxes post GST and while they will pass on the bulk of it to the consumer, some of that will surely flow towards advertising too.

Ashish Sehgal
Chief Operating Officer - Zee Unimedia



The real issue for the print industry is in the cascading impact of GST on the advertisers, which is significantly varying by category. While it is largely likely to be positive for FMCG, retail, manufacturing, and consumer durables, and auto industry overall, it clearly poses additional burden and hence budget challenges on BFSI, ecommerce, Jewellery etc. How these advertisers mitigate the impact or leverage the opportunity remains to be seen yet.

Pradeep Dwivedi
CEO – Sakal Media Group

 

Demonetisation or GST are temporary disturbances in business life that will eventually get sorted. From there, things can only go up.  

Varghese Chandy
Vice President, Marketing, Adverting Sales, Malayala Manorama





The tax percentages are too small for the overall ad index and ad pie to get affected. There are so many other factors that can impact advertising, this is not a significant reason for overall spends to get impacted. It is only if you get into a slowdown, then everything impacts negatively including GST.

Sandeep Goyal
Founder, Mogae Media



GST is a welcome move for the OOH industry. Earlier we used to pay 15% service tax, now it is 18%. However it is good news not just for the agencies but also for the client because they will be able to claim input credit for it. The only problems are that we will be forced to file returns more often and the clerical work has gone up. But that shouldn’t affect the overall AdEx, and there will be no big impact on the client’s budget for advertising either.

Pramod Bhandula
Executive Chairman, JCDecaux India

 

GST means complication in the short run. It will create confusion and trader may hold on to the ad spends for the time being.  In the long run we are hoping the situation will be positive.  In the short term there is definitely an impact on the business as everyone is still figuring out and there is lot of confusion. H2 of FY will be good and we should be able to close near to the projections made.

Harrish Bhatia

CEO, MY FM


I am hopeful that the teething troubles will not flow into the next half of the year. The growth projections should stay true and I suspect the Adex growth may be higher than 10% if all goes well. It will also depend on factors like benign crude prices, a strong rupee against the dollar, a good monsoon, better power generation, government spending on infrastructure, a more active IPO market, positive news from the stock exchange, and a more positive industry outlook.  

Ambi M G Parameswaran
Brand Strategist & Founder, Brand-Building.com

On his part, Ashish Bhasin, Chairman and CEO, Dentsu Aegis Network, South Asia believes that the industry will grow in line with the estimates, with spends gaining momentum during the festival season. He says, “September-October is when we will see the advertising flow coming back. The seasonal factor plays a role in advertising and the monsoon months tend to be slower. Traditionally, the last one-third of the year accounts for more than 40% of the advertising.”


However, on a cautionary note, Pradeep Dwivedi, CEO – Sakal Media Group says, “Given the tepid Q1FY18 coming on the back of demonetization and subsequent consumer sentiment impact, accented by stringent Real Estate regulations governing advertising in many states, full year adex projections may be challenging to attain. Categories such as education have performed well, so there is yet hope. Essentially, the festive season performance will determine the full year outcomes in a big way, as by then, the impact of GST will also be amply clear.”  Varghese Chandy, Vice President, Marketing, Adverting Sales, Malayala Manorama concurs and says, “We are all looking forward to the festive period and that will be a litmus test for the industry. It is in the interest of the industry - the advertiser, the agency, publishers that things normalise as soon as possible.”


Marketers’ Take

Our marketing strategy or ad accounts have not been affected in lieu of GST, which eliminates the notion of revaluating communication finances. The RERA accreditation will aid in optimizing our ad spends. Thus, both can actually be seen as plus points for the real estate industry from the communication perspective.

Dharmesh Jain
Chairman and Managing Director, NIRMAL & President of MCHI-CREDAI



We have never faced any issues before the act came into force nor after the RERA Act, since we were already following MOFA. There has not been any impact on our ad budgets. For us our advertising spends are always as per the need to promote our project to the end user.  Our campaigns are always in line with the new regulation.

Devang Varma
Director, Omkar Realtors    

 
               

Print advertising will continue to grow at the projected rate of 4.5% this year. However Print ads from errant operators will decline. Considering print advertisement is a preferred choice for the developer community, RERA compliant developers will continue with the same as per the norms. The current market sentiment regarding RERA has improved as buyers know there will be increased transparency.

Girish Shah
Director, The Wadhwa Group



Taking into account the possible reduction in prices of most categories and hence increased consumption, brands will have to fight for a share of the consumers’ minds and wallets. This fight will be fought through a slew of initiatives including ad spends. I would believe that there should not be much of difference in the projected advertising growth for the year.

Ahmed Rahimtoola
Head of Marketing, Allied Blenders and Distillers


 

“GST will not have any significant impact on Ad spends despite the tax rate going up to 18%. Growth of Life insurance industry is very closely linked to economic growth in our country. GST is a step in the right direction and is expected to boost GDP growth by 1-2% in medium to long term. It augurs well for the insurance industry. As a company we will stick to our advertising budgets that we have planned at the beginning of the year.

Mohit Goel
Director - Marketing, Exide Life Insurance


We are still studying the impact of GST on each marketing element. Once that is done, we will start major budgeted spends. Overall FY 2017 should be positive and our spends should be in line with our budgets. We too are currently cautious about digital spends where clarity at the overall level is lower than other marketing spends due to new recent developments in this arena.

V Ramnath
Managing Director, Ariston Thermo India

 

RERA is very specific about what can be advertised, and ay what stage and to what extent. As such, the exuberance with which developers advertised their projects in the past has now come to a decisive end. What we will see in the future is well thought-out, precise and non-misleading advertising by responsible and credible developers and property consultants who understand the new rules of engagement with consumers via advertising. While the magnitude of real estate advertisements will decrease, the quality and precision will increase. It is an all-round improvement.

Anuj Puri

Chairman - ANAROCK Property Consultants
 

But what should bring a cheer to Print players is that any price hike has to be advertised in newspapers. Explains, Abneesh Roy, Senior Vice President - Institutional Equities - Research Analyst, Edelweiss Securities Limited, “For products where the prices have increased, manufacturers are required to advertise the new MRP in at least two newspapers before selling the product under the new MRP. A&P (advertising and promotion) spends will increase for companies where the rates have increased post GST – segments such as skin care products, ayurvedic products, detergents, malt beverages, lower priced biscuits, paints, etc. Print companies stand to gain from this regulation in the short term.”

 

The increased focus on communicating to all stakeholders translates to increased billing. According to MS Mani, Partner Indirect Tax, Deloitte Haskins & Sells LLP, “Most clients are going to spend more post GST and not less, because for clients in FMCG, pharma, consumer durables or even in real estate, GST requires them to reach out to its customers and inform them of the impact of GST. This means they will have to design advertisements, in store promotion materials, internal communication between dealers and distributors. All this will lead to significantly more business and billing per ad agency.”

 

On an optimistic note, Kamal K , National Head – Media Solutions (Print), Mathrubhumi says, “Print industry is poised for a moderate growth and sectors like auto, ecommerce, BFSI are expected to contribute to this growth with a higher share for vernacular and regional newspapers. Print continues to have great relevance to advertisers for its impact, bigger size ads and innovations gaining traction, therefore the projected growth seems quite realistic.”

 

RERA and GST will go a long way in ensuring transparency in the realty sector and strengthening buyer’s confidence. GST will free homebuyers and investors from the hassle of paying several state taxes at different levels, therefore removing the double taxation impact. Currently, the real estate sector was heavily taxed, therefore 12% single tax structure on under-construction properties is a welcome move. For consumers, the major advantage would be in terms of decrease in the overall tax burden on goods. GST will help in free transport of goods without stopping at the state borders for long hours for payments of state tax or entry tax from one state to another state.

Sukhraj Nahar
Chairman and Managing Director, Nahar Group.

 “We have been working very closely with our trade and channel partners on GST preparedness and building efficient operating model for the last six months. Our technology & ERP platforms are being upgraded to manage smooth GST transition and ensure compliances. In the category of readymade garments priced below Rs. 1000, the GST rate of 5% is the right step to further incentivize affordability of quality clothing by masses across the country. Overall, the outlook for the Textile and Apparel sector remains positive.”

Sanjay Behl
CEO – Lifestyle Business, Raymond Limited

 

 “The GST for tour packages, both domestic and international, has seen a marginal increase from 4.5% to 5%, and as such we do not anticipate any impact to holiday demand; in fact, this is seen as a relief by consumers as it compares extremely favourable against the current service tax which saw a doubling of the rate from 4.5% to 9%. However, it is the sheer complexity in the execution/compliance that we see significant challenges: filing required at multiple levels and hence involving a substantial increase in effort-time.”

Debasis Nandy
Chief Financial Officer & President - Commercial, Finance and Accounts, Thomas Cook (India) Ltd  
                                                      

Print, which was earlier out of ambit of indirect taxation now comes under GST. Though the circulation income is still not taxable, a 5% tax has been levied on the main component of revenue i.e. advertisement income with full input tax credit. This will prove beneficial for overall industry as the companies will be able to claim setoff of input GST. Companies will now need to report transaction-wise details and need to upgrade their accounting and billing systems. They might also need to strategize their business locations to get the full benefit of input tax credit and to operate at optimal levels. Whilst there is some amount of apprehension on the logistic, contractual agreements, changing systems will bring in higher efficiency.

Deepak Lamba

CEO, Worldwide Media
 

The Marketer’s Take

For marketers, it is status quo as far as spends are concerned. Sachin Dingankar, Head of Marketing, Zydus Wellness says, “From a marketing perspective, the difference for us is the service tax goes up by 3%. We will have to shell out more but at an organization level, with the entire tax-on-tax cascading effect going off, there would be some credits and benefits that will start coming back to us. The organization is still trying to work out where it stands in the overall scheme of things. GST and our marketing spends have very little correlation so it would not affect our marketing spends.”  Any scaling down in spends will be temporary as Rajesh Patwardhan, CMO, LIC Mutual Fund says, “There will be a slight slowdown in the spends of the brands, since it will take some time to ascertain the impact of GST. I understand for Mutual Fund industry, both AMC & distribution side, GST is negative because of increase in the rate from 15% to 18%.”

 

For the realty sector which has been cutting back spends on the back of RERA, things could be back to normal sooner than later as Dharmesh Jain, Chairman and Managing Director, NIRMAL & President of MCHI-CREDAI says,RERA clearly underlines that marketing of products and projects are approved under two scenarios - on inventory that possesses an OC or CC till July 31 and post August 1, RERA registered projects may partake in such campaigns. We maintain a large inventory and post registration our advertising communications will resume. On the other hand, GST has no bearing on ad spends or marketing strategy, as it is an accounting process that we are in sync with.” For a sector like alcohol wherein companies will now be able to advertise less in the same budget post GST, the focus will be on impactful advertising.  Explains Ahmed Rahimtoola, Head of Marketing, Allied Blenders and Distillers, “Sectors like BFSI, e-commerce and alcohol may not have the leeway to spend as much as they could earlier bearing in mind the increase in taxes/impact on bottom line. With increased tax rates, it may seem challenging but companies will then rummage around for ways to advertise less and yet achieve the same level of impact.” Another factor to be kept in mind as per V Ramnath, Managing Director, Ariston Thermo India will be looking at digital advertising which could become more expensive. He says, “ In the short term, our marketing spends might come down slightly due to concerns and understanding nuances of GST but in the long run, our overall marketing spends will be neutral or at least 5% more than previous year.” He continues, “The impact on Digital will be different due to equalization levy from June 17 onwards(towards foreign companies e.g. Google etc), which will drive cost upwards on social media platforms and digital advertising since all brands shall start charging the same to clients. However Facebook has mentioned that no GST will be charged to advertisers but has clearly asked to provide inputs on GSTIN to all advertisers. Many brands will trade digital advertising cautiously before taking the final call post understanding impact of the above development in digital advertising.” 

Category: 
Volume No: 
14
Issue No: 
5