In the wake of the alarming impact that the ongoing but critically necessary lockdown to fight the Coronavirus pandemic has had on business and enterprise across India, the Advertising Agencies Association of India (AAAI) has formally reached out to I&B Min Prakash Javadekar, seeking his assistance to press for support for the Advertising Industry with the Finance and other Ministries and the RBI, for the implementation of several immediate measures including immediate relief in the form of IT refund plus dues from GOI and PSUs to member agencies of the AAAI – initiatives essential to pay staff salaries and to meet other pressing needs.
These, and several other concessions and measures including those related to Income Tax and GST and Business concessions, have been sought through the communication, signed by industry thought leader and AAAI President Ashish Bhasin. The AAAI has also cautioned, in in no uncertain terms, that without such support there would be significant job losses, and many trained professionals would become unavailable to revive the economy.
The AAAI has also cautioned in in no uncertain terms, that without such support there would be significant job losses, and many trained professionals would become unavailable to revive the economy
The note lists out how the Advertising Agency business has been seriously affected. The bulk of an agency’s costs are fixed in nature — be it Salaries, Rent, Electricity, Communication, Upkeep, Media Audience measurement reports, etc. The income and cash flow has been in serious stress in the last month and unless there is some intervention, many businesses will either file for bankruptcy or will have to undersize considerably.
The note says that INS and IBF, the media associations representing the interests of Print and TV respectively, have been kind enough to permit AAAI members to pay monies they have collected from their clients and not insist on what is due to them on the due dates. But, it has stressed, the continuity of the Agencies business cannot be for long without the help of the Government of India.
The AAAI has recommended that advertising expenses be treated as an investment and that that cost be amortised over the next three years… also, that advertising expenses be given weighted deduction while computing taxes — every Rs 100 spent on advertising should be treated as Rs 200 while computing the taxable income
The AAAI has also requested that any payment made to its member agencies should not suffer any TDS deduction going forward, since there is unlikely to be any significant profit for the year. Further, it has sought a direction to banks and member agency debtors that they provide the much needed cash flow to pay salaries and meet other essential expenses, etcetera, and that these would not lead to any revenue loss to the Government. The AAAI has written that the timely help would be akin to providing help to the people of India, since advertising is a critical input that can provide a ripple effect in reviving many sectors of the economy.
The AAAI has also recommended that advertising expenses be treated as an investment and that that cost be amortised over the next three years. AAAI believes this will encourage larger advertising outlay which will help revive the economy faster. In the same vein, the AAAI also suggested that advertising expenses could be given weighted deduction while computing taxes. The suggestion was that every Rs 100 spent on advertising, should be treated as Rs 200, while computing the taxable income.
The AAAI has also stressed upon the importance of the advertising industry for the accelerated revival of the economy.
Considering the gravity of the situation, the AAAI has also offered to get some of its senior members on a Skype/Zoom call with the minister and his officials to explain further the imperative need for support from the government.
Here is the complete text of the request and recommendations from AAAI President Ashish Bhasin to Honble Minister Prakash Javadekar
Dear Honorable Minister,
Some suggestions to ensure Business Continuity for Advertising Industry
You are familiar with the Advertising Agencies Association of India, the apex body for all major advertising/marketing communication companies in India. Our 110 members would account for about 80% of advertising spends in the country. Our industry employs nearly 1,00,000 professionals comprising art directors, copy writers, strategic thinkers, artistes, media planners, digital/interactive & marketing analytics professionals etc., which in turn supports the ecosystem of the media and entertainment industry employing lakhs of people.
Advertising is the economic engine
It is a well-known fact that advertising provides the impetus to the economic engine of every nation. To elaborate, it causes an economic chain reaction that (a) generates direct sales and jobs due to the promotion of products and services, (b) generates indirect sales and jobs among the first level suppliers to the industries that incur the advertising expenditures, and (c) generates indirect sales and jobs among all other levels of economic activity as the sales ripple throughout the economy.
Our industry is worst affected
More than many other businesses, Covid-19 pandemic has hit our industry quite hard with a serious slide in our income. The last quarter of 2019-20 saw a decline in revenue of about 25% over the same quarter of the previous year. The prospects for the year 2020-21 is quite uncertain, since no one knows how long the pandemic will last and when our economic activity will be back in full force.
Our costs are principally fixed overheads
While this is so, as a service industry, our main cost is on people (salaries & related costs), occupancy costs (rent, upkeep, internet and IT related etc.) and other costs (syndicate research relating to audience measurement of TV & Print, travel, communication etc.). Thus, the bulk of our costs are fixed in nature with little leeway in managing the costs, unless we all decide to undersize our operations, which will be at a huge cost when the economy is to be revived.
Our suggestions to bring the industry back to health
In such a background, we request you to consider the following suggestions for our business continuity, which is also intrinsically connected with the economic revival of the nation.
Advertising is an investment:
Advertising or brand-building expenses should be treated as an asset and be allowed to be amortized over the next three years. Many companies recognize the enduring benefits of advertising and this will encourage them to invest without fear of considerable decline in profits. This will no doubt spur enhanced consumption thereby accelerating the economic activity.
The advertisers can also be given an option to account the expenditure on a weighted scale. A Rs 100 expense could be allowed to claim an expenditure of say twice that amount (Rs 200), while computing income tax. This may encourage a higher level of expenditure by profitable companies, which again will accelerate the revival of the economic activity.
Government dues to be paid
The TDS on advertising agencies have always been significantly more than the profits they make. Several Crores of Rupees of IT refunds are due to each one of the agencies. Can this be immediately refunded for the past years, including for the Assessment Year 2019-2020?
Many of the advertising agencies have substantial dues from Government of India, as well as from the Central Government controlled PSUs. Can these be ordered to be released within the next few days?
Income Tax and GST
Since profitability and cash flow is going to be poor this financial year, TDS should not be deducted when agencies bills are being paid by advertisers. In any event, Advance Taxes will be payable if applicable as per Income Tax deadlines.
GST should be allowed to be paid on collection of bills by agencies, as against by 20th after the month of billing. If a firm date is indeed needed, this should be after 60 days from the current due date.
Government should not block the utilization of GST credit and release all credits blocked so far immediately.
Government should stall all e-invoicing programs till further notice. This could add to the disruption of the economic revival.
Transfer of accumulated GST input credit – allow establishments for utilization of accumulated ITC having the same PAN across all the registrations in different States. This will result in free flow of working capital and ease of doing business.
Speed up all the refund of GST applications within 2-4 weeks.
Business Credit related
Our industry is unique in that our credit terms with media owners are pre-fixed, while advertisers are under no legal pressure to pay us on the due date. May we request that the Advertising Service be categorised as an essential service, given the potential it has to revive the economy? And consequently, direct the advertisers to settle agencies’ bill within 45 days of receipt?
Media houses are much larger entities and therefore there should be a directive to provide additional credit to agencies, should the contra-payment be not available from advertisers. The agency cashflow is fragile and the business could come crumbling down in the absence of such a protection, at this time of economic revival.
2 Advertising Agencies, after significant drop in revenue, are struggling to match the cashflows. We would request you to get the banking sector to allow an additional 33% cash credit limit for at least one year, at prime lending rates, without any additional security. The additional cashflow will permit them to steady their business.