Businesses brace for impact as Facebook implements VAT on advertisements

Dar es Salaam. The implementation of Value Added Tax (VAT) on advertising services by Facebook has sparked concerns among businesses, advertisers, and experts about the broader implications for the country’s business landscape.

Facebook, owned by Meta Platforms Inc., announced on Wednesday that starting December 1, 2023, advertisers on its platform in Tanzania will be required to pay VAT at the local rate of 18 percent.

“Beginning 1 December 2023, Facebook ads in Tanzania are subject to a value added tax (VAT) at 18%. This applies to advertisers whose 'Sold To' country on their business or personal address is set to Tanzania and who haven’t added their VAT Registration Number (VAT ID) to their Facebook ad account,” reads the statement.

The move, however, has prompted advertisers to have to review their budgets and reassess their digital marketing strategies.

An update on the Meta website said the 18 percent VAT will be applied based on personal estimates, with advertisers required to add a VAT registration number (VAT ID) to their Facebook ad accounts.

This decision comes as a result of the talks between the Tanzanian government and major tech companies, including Meta Platforms Inc., regarding the imposition of a digital services tax.

Tanzania Revenue Authority's (TRA) statement clarifying the move on Saturday noted that the tax will not apply to private customers who use social media accounts such as Facebook and Instagram to advertise their businesses.

"But it concerns businessmen who have commercial agreements with those social networks where, through those agreements, they pay advertising costs," reads part of the statement.

The tax man says that the taxation of non-resident electronic service providers is in accordance with the Finance Act 2022.

 However, in July of this year, the Finance Act 2023 expanded the scope of the interpretation of 'electronic services' by adding the element of advertisements.

The government argues that tech giants generate substantial revenue within the country but have not been contributing their fair share of taxes.

However, a representative from an international marketing agency in Dar es Salaam (name withheld) told The Citizen in a telephone interview that there would be a great impact on the business.

"This development will undoubtedly impact the advertising budgets of businesses. Advertisers will need to carefully manage their expenses to accommodate the additional cost, which could potentially lead to adjustments in the scale and frequency of their digital advertising campaigns on the platform."

Facebook's decision not to facilitate direct VAT deductions and instead rely on advertisers to make payments based on personal estimates has raised questions about the ease and efficiency of the process.

Some advertisers are concerned about the administrative burden and the potential for errors in estimating VAT payments.

The representative, who is a marketing consultant at the agency, expressed reservations, stating, "While it's understandable that Facebook expects advertisers to manage their own VAT payments, the lack of a more streamlined process could lead to confusion and errors. Advertisers may find it challenging to accurately estimate VAT obligations, leading to potential compliance issues."

Despite the immediate challenges posed by the introduction of VAT on advertising services, some experts see potential opportunities for the technology sector.

They believe the government's push to tax major tech companies reflects a broader global trend, with many countries seeking to ensure that digital giants contribute their fair share to national revenues.

A digital and ICT analyst from the University of Dar es Salaam College of ICT, Dr Jastine Mmari noted that while there are some concerns, the government's focus on taxing digital services could signify a growing recognition of the importance of the technology sector to the economy.

“This could encourage local innovation and the development of homegrown tech solutions, creating opportunities for domestic businesses.

The coming months will reveal how businesses adapt to the new tax regime and whether this development will stimulate growth and innovation in the local technology sector,” said Dr Mmari.