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Wednesday, 23 September 2020

Ads are still exempt from VAT, but not stamp tax and VAT on production inputs

Broadcast ads are exempt from VAT, but subject to stamp tax and VAT on production inputs: Intermediary goods and services used to produce ads are subject to a 14% value-added tax (VAT), the Tax Authority said in a directive (pdf) to clarify how tax legislation treats ads. The cost incurred by an advertiser to broadcast fully-finished ads, meanwhile, are VAT-exempt and subject to a separate 20% stamp tax. This is not a new decision, but removes confusion or lack of clarity on the tax treatment of ads, Mohsen El Gayar, director of Taxpayer Services at the Tax Authority, told Enterprise.

What was the confusion about? The Tax Authority treats advertisements as an end product created through the integration of several goods and services, El-Gayar said. Outdoor ads, for instance, involve an advertising agency paying the state or a property owner to rent billboards, creating a large-scale print, and paying for services to have the print installed. A similar process applies to video and TV advertising and print ads in newspapers, with several intermediate steps including shooting videos, animation, and design and consulting services. All of those processes are subject to VAT, which is remitted by a seller of any mid-way good or service. Broadcasting the ad itself — or the fee paid to book airtime or slots in a magazine or outdoor — is VAT-exempt as it’s already subject to a separate, indirect stamp tax.

This tax treatment will remain in place until an in-the-works overhaul to the VAT Act that would apply the tax to both ad inputs and final products is complete. The overhauled bill would scrap the indirect stamp tax on ads as a final product. It’s unclear where we stand on the proposed changes, which the Finance Ministry finalized in June and which received approval from the cabinet economic group a week later.

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