When you pay for adverts on Guardian, NTA and billboards in Lagos, you would be charged VAT (value added tax). But when you pay for Facebook and Google adverts, especially if you use the self-serve service, no VAT is assessed on you. It is not clear if there is a mandatory online collection of taxes like VAT by corporations especially when the companies are foreign with local domains. The implication is that governments do not earn taxes on adverts shown to their citizens, and paid by their citizens and corporations. In coming years, governments have to find a way out: Egypt is pursuing that roadmap to improve its capacity on online tax collection.
Egypt’s parliament is evaluating an option to tax people and organizations that advertize on platforms like Facebook and Google. This, according to some of Egypt’s parliamentarians, will help the country “protect the Egyptian advertising market.”
Egypt is about to reach a strategy allowing the government to implement advertisement taxes on social media websites, especially Facebook and Google. According to Parliament statements, imposing these taxes on the advertising companies will protect the Egyptian advertising market, and adjust its mechanisms.
As companies like Facebook deepen products like WhatsApp as portals for commerce, governments have to develop new tools on tax collection because there is a possibility that countries may become dead pipes: their citizens and firms do the commerce but the country gets no tax benefit. Yes, everything would be warehoused offshore through some special tax arrangements in tax havens.
“It’s clear those companies will probably jump directly to WhatsApp to connect to their prospective customers and get their businesses discovered.It’s unclear if they’ll advertise on Facebook’s Newsfeed.” Decot was speaking to me on-stage at the MEST Africa Summit in Cape Town last week.
But that doesn’t mean Facebook thinks African or Asian businesses will never advertise, it’s just taking a different approach. The first move has been to create a WhatsApp Business app for millions of small businesses to reach their customers. The next step has been to “fix the plumbing” with key services like payments and discovery and identify the “underlying business model”, Decot explains. “If we connect many millions of consumers with many millions of businesses at some point the businesses will pay us to get in front of more customers. We don’t have to reinvent the wheel.” (QZ Newsletter)
Inability to effectively collect online tax may not look like a threat today but as more business systems move online, new models for tax collection including online tax would become critical. Whenever you pay that Guardian Newspaper advert, you have to send that VAT money. But since you have been paying for the Facebook and Google adverts, nothing like that has happened. It should be a concern because even though we do most things online, we still exist in the physical world where government needs resources to provide social services.
Certainly, we need a new model on tax collection and that would require new tools and processes. We cannot allow the web to destroy the value associated with tax even as it continues to redesign the structures of many other areas. Nigeria desperately needs innovation on online tax collection.
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