The implications of taxing ads on major online platforms
As of March 4, 2019, all Bangladeshi advertisements going to online platforms, like, Facebook, Google, and YouTube will be subject to 15% VAT.
The groundworks for this decision were laid out by the National Board of Revenue last year in April. When most companies spend a fortune behind their online ad campaigns, they look to Facebook or YouTube for ad purchases. This VAT will make it more expensive for companies to purchase ad spaces but essentially makes it so that these online platforms can't walk away with all the advertiser revenue anymore.
This will certainly generate a lot of revenue and with taxes to be implemented on domain sales and licence fees as well, the Bangladesh government stands to make a lot money out of this decision. And it came at the right time as well.
During the same time as National Board of Revenue had proposed the move to tax Facebook, Google and YouTube, a similar conversation was taking place in Europe and India. The thing is, up until that point, companies like Facebook and Google weren't taxed on sale but rather they had to pay a corporate tax in accordance to the location of their headquarters. So, in trying to mangle this loophole, Google were opting out of paying their 35% corporate tax by simply showing their headquarters to be located in Ireland where the corporate tax is just above 12%. This let companies like Google and Apple get away with paying less than what they owed back in taxes.
But with a crackdown such as this, major tech corporations will find it increasingly difficult to avoid taxes. Because just like the Europoean Union, Bangladesh too are adopting the sales tax approach which negates Facebook, Google and co. from exploiting the traditional loopholes. But in order to collect this revenue, strict monitoring is required.
There are currently 2.2 crore active Facebook users in Dhaka alone and with digital marketing being as relevant as it has ever been, the yield from the VAT collected from Facebook, YouTube, Google and Amazon can be monumental if the revenue is collected thoroughly and if the tech companies are properly vetted during collection of yearly financial records.
The 15% VAT, on paper, is just a causality for advertisers who put up their digital campaigns on these platforms. But this could lead to some major developments and change how these tech moguls operate in South Asia.
So far digital agencies expressed mixed reactions to the concept. Some are skeptical how the process will be carried out. if the social media giants are not opening office in Bangladesh any time soon, then many fear this will adversely effect the entire digital marketing industry of the country.