I have been talking to several Industries marketing executive about the impact of GST on our market and let me tell you, Please stop guessing because nobody knows. There are some predictions about it but I feel it’s too early to predict the future of GST impact.
GST is the biggest tax reforms since independence. From July 1st 2017 India has new tax law known as Goods and Service Tax. GST will be levied at multiple rates ranging from 0 per cent to 28 per cent. GST Council has finalized a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower rates for essential items and the highest for luxury and de-merits goods that would also attract an additional cess.
Now coming to first question that we all had, how will GST effects the sales and marketing services?
Marketing activities are not going to change because of GST, as the focus in marketing is always customer needs and demands. On the spend level, it would cost you 3% more than before but with the reduction of tax slab under GST, all sectors will be able to advertise more in the same budget as cost of advertising will reduce to a large extent. This will however not be the case immediately. In the short term, the marketing, sales and ad industry is slated to witness some challenging times too and in long run immense growth sales and marketing is inevitable.
After few days of GST, there is one development that brings smile to consumers.
Sectors such as electronics, automobiles and consumer goods announced a reduction in the price of some products. History has taught us that competition is the best guarantor of consumer welfare.
Now India has transitioned to GST, it’s best to let the positive spin-offs of more effective tax planning pay out.
There are some big reforms that come to industry and consumer.
Let’s chalk it out
Advantages of GST: Obvious answer is that by replacing a really messy system of indirect taxation it will be easier for firms to do business across the country with GST, this will increase the investment and through that growth of the country
Simplified tax structure
Now after 7 days of GST, market all over India seems to be taking it very strongly.
For E-commerce it will help to create a single unified market across India and allow free movement and supply of goods and will eliminate the cascading effect of taxes on customers which will bring efficiency in product costs.
The equalization levy or ‘Google tax’ directed towards foreign multinational digital companies like Facebook, Amazon, Google, Yahoo, Twitter, etc. from July 1st, 2017.
The levy may drive up costs for advertisers in the country, with the digital companies expected to pass on the tax cost. The equalisation levy may soon be charged on services offered digitally like online collection of payments, website hosting, design and creation of websites, email, blogs, radio and television advertising, online sale of goods and services that include software, movie and song downloads, books and games, and even online consumption of news. This might affect companies that sell hosting, website development, bulk emails, online advertising, etc.
Facebook has stated that for advertisers in India, it’s necessary to update the business’s Facebook ad account settings with the GST registration number before continuing to advertise on Facebook. However, No GST will be charged to the costs of Facebook Ads.
Sectors like Pharmaceutical, Real estate, retail, hospitality will get to see some major changes in their taxes. Online business and digital marketing will also have a huge impact after GST implementation.
Retail business in India is a key pillar of the economy and accounts for about 10% of the GDP. The Indian retail market is estimated to be more than US$ 600 billion and one of the top five retail markets in the world by economic value.
For Instance, pharmaceutical products will see 12 percent GST as against earlier rate of 10 percent. The healthcare sector will remain exempt from the GST however the inputs by the healthcare sector will be taxed at 18 percent leading to rise in the operating costs.
For Real Estate, the effective GST rate on under-construction real estate projects will be 12 percent only and not 18 percent as there will be abatement for land cost. Brokerage firm Edelweiss in a research note said, “We believe impact on property prices under GST will be driven by cost structure and extent of input credit available under GST passed to buyer.”
For FMCG companies could generate substantial savings in logistics and distribution costs as the need for multiple sales depots will be eliminated. FMCG companies pay nearly 24-25% including excise duty, VAT and entry tax. GST at 17-19% could yield significant reduction in taxes.
To summaries, I have a positive outlook towards GST. It is a game changer when it comes as the companies will save taxes and that in turn will help to spend more on their marketing and branding activities, hence boosting the sale. The Consumer will also be happy as they will re-calibrate their expenses to the new price and will get to see more buying power in their hands. So all in all, GST is going to be a boom-train for all the industries and consumers.