Nigerians will now pay 7.5% Value Added Tax on Facebook and Instagram adverts from January 1st, 2022. The social media company announced that as a result of the regulation of the Nigerian government, all advertisements on the platform whether for personal or business purposes will be subject to a 7.5% Value Added Tax.
Value Added Tax is a levy charged on each stage of production of goods and services to the end-user, usually the final buyer.
The implication of the VAT charge is that when you want to place an advertisement on Facebook or to boost a post with N1000, the money will be inclusive of a 7.5% VAT charge which means you will pay an additional N75 on the advertisement service worth N1000.
Simply put, the higher the amount you would put into advertising on Facebook and Instagram, the higher the VAT figure.
33 million persons are reported to use Social Media as of January 2021. Facebook has a user strength of 29 million persons, social media generally commands huge followership and so from small and medium scale businesses to mega-corporations, and the corporate sector; all take advantage of social media to reach their audiences. They use a combination of methods, from promotion/boosting of posts to full on ads. It is commonplace for ads to spring upon a person’s social media feed from Twitter to Instagram.
So the VAT charge to be introduced in January of next year will have a significant impact on business ventures from small to large enterprises.
It is then not surprising that the decision has elicited many reactions, especially on social media. One of the most repeated agitations is that the VAT charge may gag freedom of expression, limit the use of the platform and affect businesses that leverage these social media platforms for growth.
But does the argument of VAT limiting freedom of expression hold any water?
Could the 7.5% VAT Charge Possibly Gag Freedom of Expression?
The Freedom Forum Institute defines the Freedom of Expression as the ability of an individual or group of individuals to express their beliefs, thoughts, ideas, and emotions about different issues free from censorship of the government.
The Equality and Human Rights Commission noted that Freedom of Expression involves being able to express your opinions freely without government interference.
It is understandable that Nigerians are wary of government involvement in anything that could potentially affect rights. The Buhari-led administration is notorious for its hard leaning towards censorship. Its 7-year campaign against freedoms of expression and the press is typified by punitive legislation such as the social media bill, the Nigerian Broadcasting Corporation’s overreach, malicious use of laws such as the defamation and terrorism act, unconstitutional arrests and detentions and misuse of power by security agencies.
The Twitter ban in June is icing on a cake that has been baking for the entirety of the Buhari administration.
However, the introduction of the VAT charge on social media ads does not appear to be another attempt at limiting freedoms. No part of the announcement includes any new restrictions to the content of advertisements beyond the rules that already exist as Facebook posting laws.
Although the African Commission on Human and Peoples’ Rights has expressed concerns on some Social Media Taxes which it described as having the potentials of negatively affecting the ability of users to gain access to the internet, these concerns bothered on access to the internet and did not list tax on social media adverts as part of its concerns.
Such instances stated by the Commission included the Excise Duty bill in Uganda which requires users of Social media platforms to pay UGX200 (equivalent USD 0.05) per user, per day of access.
Another such example is the Electronic and Postal Communications Regulations of Tanzania where licensing requirements were introduced for bloggers, who were required to pay around USD900 for Licenses.
In Uganda, if you want to use Facebook, for instance, you would be required to pay an equivalent of USD0.05 per day, while in Tanzania you would pay around USD900 to own a blog, these laws and regulations have attributes that negate the definitions of Freedom of Expression.
Typically, Value Added Tax is not an economic tool to clamp down on free speech.
It is however an economic tool that contributes to government revenues and the Nigerian government does need revenue to fund its poorly managed budget.
Considering the unfavourable economic conditions prevalent in the country and the huge challenges that all businesses, big and small, are facing; the right accusation on the newly introduced VAT might be insensitivity.
Businesses that depend on Social Media for promotion and reach will now have to pay more to do so among other increasing costs of doing business in Nigeria. A recent report revealed that Nigeria is no longer among the top ten countries to invest in and the challenge of doing business in Nigeria is one of the reasons for this fall from grace.
Do Other Countries Charge VAT for Internet Adverts, Services?
In the United Kingdom, the law states that “If you are a business making supplies of digital services to UK consumers, those supplies are liable to UK VAT. If you make supplies of digital services to consumers outside the UK these are not liable to UK VAT.”
Access to the Internet for some Digital services is also listed as VAT-able in the United Kingdom. Advertising space on websites also carries VAT charges.
Indonesia also has a similar law with a 10% VAT rate for Online businesses, the Indonesian provision states that no matter where you are based, so long as you have customers in Indonesia, you would be expected to pay 10% VAT. The list includes websites, internet service providers, online ads, and affiliate marketing.
In Singapore, if your sales in the country exceed SGD 1,000,000, you would be charged VAT at 7%. VATable items include online ads and affiliate marketing.
In Egypt, there is a 14% VAT for online ads especially for companies that have a sales figure of EGP 500,000 per annum.
Multiple Taxation Issues
A direct implication of the 7.5% VAT for organizations inclusive of small and medium scale enterprises is an increase in the cost of marketing.
Another concern is the issue of multiple taxations. SMEs have been vocal about how the poor administration of taxation in the country is negatively affecting businesses, killing profits and forcing businesses into bankruptcy.
The President of the Abuja Chamber of Commerce, Dr Al-Mujtaba Abubakar had said in a report that they had proposed legislation to harmonize taxation for SMEs to the president. Part of their requests included a Presidential Executive Order collating all current incentives for SMEs and issuing directives for due compliance.
These comments were made back in August and the new VAT on SM ads was announced in December. Clearly, the government either did not listen or they did not make the connection between the enforcement of the 7.5% VAT on SM ads and multiple taxation challenges faced by SMEs in the country.
Poor Accountability, High Corruption Colors Government Sincerity on Tax Funds Administration
Perhaps if taxation had resulted in social amenities that directly benefit citizens, people would not mind additional taxation. However, over the years, the concerns on tax management have been largely that of mismanagement.
From everyday Nigerians to economy and policy experts, everyone has questioned how revenues accrued from tax are spent.
Nigeria May Need to Harmonize Tax System, Build Trust for more Efficient Taxes Collection, Mobilization
With the government keen on enforcing taxes including Ads on social media platforms, it may want to consider harmonizing tax collection. Businesses already pay different taxes, and more taxes without synchronization will continue to pressurize an economy beleaguered by rising inflation and a weak currency.
The finance bill planned for passage presents an opportunity for the government to explore loopholes in its tax system to avoid over-burdening its citizens while still earning due revenue from taxes, considering prevailing economic conditions.
The government may also want to tackle corruption, ensure delivery of social services and build trust in the system through transparency and accountability. This way, policies of the government will be better accepted especially where fundamental human rights are respected.