Treat ad costs as investment, give tax relief: Advertising Agencies Association of India to government
The objective is to encourage a higher level of expenditure by profitable companies, which will in turn accelerate the revival of economic activity.
The business of advertising agencies has shrunk by more than 70 per cent following the spread of Covid-19 and the lockdown. In a recommendation to the government, the Advertising Agencies Association of India (AAAI), which is the national association of advertising agencies, has proposed that advertising expense be treated as an investment and the cost be amortised over the next three years.
The objective is to encourage a higher level of expenditure by profitable companies, which will in turn accelerate the revival of economic activity. In a letter to Prakash Javadekar, the Union minister of information & broadcasting, AAAI said on a Rs 100 expense, an advertiser be allowed to claim an expenditure of, say, twice that amount (Rs 200), while computing income tax.
The bulk of the agency's costs are fixed in nature, be it salaries, rent, electricity and communication, among others. "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 under-size considerably," the note said.
AAAI president Ashish Bhasin, who is also CEO, Dentsu Aegis Network Greater South and chairman & CEO of India, told TOI, "Advertising industry is like the lubricant to the economy. And the lubricant for the advertising industry is liquidity. If we can infuse liquidity in advertising by encouraging profitable companies to continue to advertise, it will spur consumer demand, which in turn will kick-start the economy. The positive benefit from an improved consumer demand will far outweigh the offsets we are asking for."
With hotels, airlines and other industries impacted by the lockdown, Bhasin said overall average advertising industry revenues have come down by more than 70%. "We had earlier estimated a growth projection of 11-12% for this calendar year. However, with the current situation, we might just end the year with a degrowth," said Bhasin.
AAAI has requested the government to pay its dues to advertising agencies at the earliest possible. AAAI has also asked for an expedited refund of GST applications within 2-4 weeks.
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