From January 1, advertising on Facebook will officially be subject to value added tax (VAT). This news coincided with an unpopular increase in VAT from 18% to 20%.
Although there are “gray” options of withdrawal for non-payment of this tax, almost certainly a large company like Facebook will not be to use — once the company’s problems after the recent scandals — for example, Cambridge Analytica is not needed.
The reason for this situation was the so-called “tax on Google”, introduced 2 years ago. His goal is to put on record companies selling in Russia virtual goods. The first to their products added VAT Google, followed by Apple. Soon joined Netflix, Bloomberg, Alibaba is almost a hundred and fifty companies as of the end of last year.
For 2017, this tax brought to the Russian budget of about 7 billion (although the lawmakers were counting on 10 billion).
With the introduction of the tax has arisen: companies had to change the pricing policy, for example, increased prices for end-users of Google Play and AppStore. But Facebook may be more problematic. It’s all about the specificity of functioning of the social network and the market social networks in General: increasing prices for advertising can have a serious impact on several levels.
Facebook is one of the main tools advertisers. 82% of paid advertising on social networks have on Facebook. The total domestic market size of online advertising is more than 200 billion rubles, and the advertising market in social networks — about 30 billion so far, the growth of budgets on advertising in social networks in Russia are very positive, with 36% — but the introduction of VAT this growth clearly does not.
Facebook decided not to follow the path of Wargaming and are not compensated for the VAT costs on their own, and raised prices. Now the cost of each Lida will increase by 20%. This means that the company is in the same budget will attract not 6 and 5. Let’s take a simple example — if you had a monthly SMM-budget of 20,000 rubles (very small by modern standards amount), now you will pay 24,000 rubles for exactly the same result. That is 48 000 a year will go just like that, with no profit growth, no increase in the number of customers. Large companies (and even many individual advertisers) the amount will be much higher.
Total VAT will “eat” for 200 million each billion of this market, not giving businesses the opportunity to grow faster.
Companies from the sphere of SMM will have a particularly hard time — 20% from Facebook +20% VAT will lead to increase their advertising price tags on an impressive 40% of advertising budgets will have to seriously optimize. In addition, it is unknown how this change will react “Yandex” or Google. They can play on the contrast, and can, on the contrary, to follow the trend and raise prices after Facebook.
The illusion of return
It would seem that VAT then the VAT is that it can be returned, so that the cost will be only temporary. The reality is somewhat more complicated. First, many advertisers is individuals who do not have the possibility of VAT refund from a legal point of view. Second, a VAT refund is possible only for documents in the prescribed form, and their Facebook doesn’t provide. No one knows whether Facebook will introduce a possibility to replenish the balance to legal entities, as, for example, this is possible in “Yandex. Direkt”.
The company cleverly denies responsibility — on the one hand, it proposes to provide a tin to simplify the process of further VAT refunds, on the other — argues that “does not provide advice on tax legislation” and offers to appeal to the tax court for further information.
Yes, there is a possibility that someone will be able to reclaim VAT, but do not count on this with absolute certainty.
Likely advertisers, as usual, will try to find better workarounds. The catch is that VAT will be charged only with those ad accounts, for which Russia is listed as the primary place of business of the company.
Appears the financial scheme, when operations will be conducted through foreign Bank accounts, through intermediaries in countries where a lower VAT or no “tax on Google”. Although it can also be fraught with extra costs, but the total is still possible to reduce the loss. For example, in Kazakhstan, the VAT is only 12% and in Thailand and does 7%. In the end it may happen paradox: the amount that had to go into the country, would be to leave it in other economies.
This is not an idle thought: when the need to pay VAT rests on Google, the Russians began to make payments through entities in other countries, registering foreign accounts or even buying old accounts registered prior to 2007 (they are VAT exempt). Precise amounts cannot be estimated, but given that according to some rent accounts VAT could cost $ 200 per month, the expenses of such companies to pay the tax clearly was more than $2400 per year — that is more than 150 000.
Although, on the one hand, the collection of taxes from working in the country companies is quite logical, but how this is done now only deals damage both businesses and the economy as a whole. The development of the technology sector and market of digital technologies in our country are allocated very little money — only about 3% of the defense budget. Given this need, on the contrary, be encouraged by IT companies and to encourage businesses to participate in the development of the market. But while that goes exactly the opposite.
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