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Wednesday, 3 April 2019

FinMin looks to tax the living daylights out of social media ads, e-commerce players

EXCLUSIVE- FinMin looks to tax the living daylights out of social media ads, e-commerce players: The Finance Ministry is moving ahead with plans to impose a mix of VAT, income, stamp, and development taxes on social media and e-commerce platforms and internet search ads, a senior government official told Enterprise. The move will see the ministry to draft legislation enshrining the tax treatment of each category of activity and will require amendments to the VAT Act, the Stamp Tax Act, the Income Tax Act, and the E-Commerce Act. The ministry will likely require three months to draft the amendments, which will require signoff from cabinet before going to the House of Representatives for review and approval.

SMART POLICY- The move will businesses operating online the same as their brick-and-mortar competitors.

  • Companies running ads on social media platforms, including Facebook, Twitter, and Google, would be obliged to pay a stamp tax of 15-20%, treating social media buys exactly the same as with print ad purchases.
  • Companies operating online would pay the standard 22.5% income tax on profits, while sole traders would be taxed at their marginal rate.
  • The ministry has yet to determine the value of the development fee it plans to impose on e-commerce activities.
  • E-commerce platforms such as Amazon’s Souq as well as Jumia and OLX would be charged 14% VAT on all sales made online.

Background: Taxing social media and e-commerce activities has been on the government’s to-do list since the introduction of the VAT in 2016. Since then, the Finance Ministry has been looking at different ways to tax online ads and retail. A ministry source told Enterprise in September that the ministry was studying how to charge and remit 14% VAT on social media ads. The Finance Ministry also told us in October that it was requiring e-commerce platforms including Souq, Jumia, and OLX to charge VAT on all transactions that would be subject to the tax if sold offline.

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