In an unwelcome development for digital advertisers in Pakistan, the Sindh Revenue Board (SRB) introduced a mandatory 13 percent provincial sales tax on advertisement services, effective October 1, 2023.
This move has far-reaching implications for businesses, advertisers, and the digital marketing industry. Let’s delve into the details and explore the impact of this tax on the advertising ecosystem.
The Tax on Digital Advertising
The SRB has now mandated that all banks deduct a 13 percent provincial sales tax on advertisement services. This tax applies to bank payments for advertising services to non-resident service providers, including giants like Facebook and Google.
Heavy Taxation on Ad Spending
This new tax comes on top of existing charges related to advertising spending through credit cards, such as an additional 16 percent provisional sales tax, a 0.8 percent DCC Merchant Fee, and a 16 percent FED on DCC Merchant Fee.
This means that for every Rs. 100 spent on ads, the total payment becomes Rs. 116.93 for local payments. For cross-border payments, additional charges include a 4 percent forex fee and a 5 percent AWT fee.
Challenges for Performance Marketers
These tax changes particularly impact performance marketers, as they must factor in these costs when calculating their ROI/ROAS (Return on Investment/Return on Ad Spend).
From the perspective of brands, they must pay a 9 percent WHT (Withholding Tax) and a 15 percent GST (ICT) on top of their advertising expenses.
Unresolved Taxation Issues with Big Tech
One of the underlying issues is the taxation of big tech companies like Facebook and Google, who operate from abroad. The inability to tax these companies directly has led to a heavier tax burden on local media buying agencies and freelancers as the tax is passed down the line.
Banks as Collection Agents
The SRB has designated all scheduled banks as collection agents for the deduction of sales tax on advertisement services. These banks are now responsible for collecting the tax from recipients of these services located in Sindh, with the banks acting as withholding agents.
Businesses and advertisers must be aware of these tax implications and adapt their strategies accordingly, considering the increased costs associated with digital advertising.