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Corporate tax rate cut may boost India’s adex by Rs 3,000 crore

According to experts, the increased margins because of the reduction in the corporate tax may allow Indian companies the extra headroom to spend more on advertising and marketing. Shashi Sinha of IPG Mediabrands told that there would not be any shortfall in adspend in 2019

The government’s decision to reduce the corporate tax for domestic companies could lead to an infusion of at least Rs 3000 crore to India’s total adex.

The finance ministry on Friday had announced a reduction in Corporate Tax to 25.17% for domestic companies, from the earlier rate of 30%.

The move has come as a respite for India’s embattling media houses who have been seeing subpar growth in the last couple of years.

The government decision would lead to savings of at least Rs 1.45 lakh crore in taxes for the Indian companies. For manufacturing startups, formed October onwards, the rate has been further reduced to 15%.

Lakshmi Menon

Lakshmi Menon, CEO, The New Indian Express Group, said, "The sentiments in the industry which were low will turn into positive. The reduction in tax means that the spends will slowly increase, and so the earnings. That is the biggest take away with new advertisers coming in, and most importantly, it will give a boost to the sentiments."

Shashi Sinha

Speaking with, Shashi Sinha, CEO, IPG Mediabrands, said that there would be no shortfall in the ad spend after this move by the government.

“The advertising spend is likely to gain Rs 3,000 crore from the estimated amount of monies to be injected as a result of the reduced corporate tax rate,” Sinha said.

Madison had earlier cut India’s total adex prediction for the current year from Rs 70,888 crore to Rs 69,073 crore.

An addition of Rs 3,000 crore to Madison’s revised forecast takes India’s total adex prediction for the current to Rs 72,000 crore.

Jehil Thakkar

Jehil Thakkar, Partner at Deloitte India, said, “The tax cut could drive new product launches and the establishment of companies that could prove to be a catalyst in healthier advertising in times to come."

According to the revised forecast by Madison, television was estimated to lose the maximum among all the mediums. The shortfall for television alone was more than Rs 1,500 crore while Outdoor was estimated to lose Rs 200 crore. All other mediums were unaffected according to the revised forecast.

The growth forecast for television was revised to 11.2% in August 2019 from the original forecast of 18% earlier this year in February 2019. The share of television was revised to 38% from 39% in the original forecast.

The advertising industry was already hoping for a revival this festival season. The tax benefit will bring more reasons for brands to spend more on advertising.

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