The revenue authority is taking steps to realise value-added tax on digital advertisements on social media or other platforms by local firms following pleas from the Newspaper Owners' Association of Bangladesh (NOAB).
Digital advertisement is progressively accounting for a lion's share of companies' advertisement budget and it is not taxed like other forms of advertisement.
The tax collector asked its field office to take steps to ensure collection of 15 percent VAT on payment made by local firms to digital platforms such as Facebook and Google.
The National Board of Revenue said the money is sent through the banking channel to the recipients abroad, so banks should collect 15 percent VAT when the advertisers make the payment.
In a letter signed by Md Tariq Hassan, second secretary for VAT policy of the NBR, the revenue administration asked its field office to inform the headquarters whether the tax is being properly collected from the area.
“We have provisions to collect VAT from payment made by advertisers to tech companies for online ads. Now we have taken steps to ensure proper compliance with the provision,” said Hasan Mohammad Tarek Rikabder, first secretary of NBR VAT policy.
The NBR also sent a copy of the letter to the Bangladesh Bank.
In November last year, the NOAB sent a letter to the finance ministry, the BB and the NBR to voice out its grievance over the rise of digital advertisement.
Facebook and Google are earning a huge amount of money from digital advertisements but they are not paying any tax, the association said.
The two tech giants have no office in Bangladesh, which allows them to remain out of the purview of Bangladesh's laws. But it is a requirement that every company that wants to do business in any country complies with the local laws.
The NOAB also placed the proposal to the revenue authority at a pre-budget meeting earlier this month and the NBR chairman asked his colleagues to take the issue into consideration.
To bring the income of the tech companies under the tax net, the NBR slapped a 15 percent withholding tax this fiscal year on 'advertisement income or digital marketing'. In addition, a 15 percent VAT is to be paid by the advertisers on the bills served by digital companies.
On April 12, the High Court ordered the government to realise appropriate tax, VAT and other charges from the revenues earned by different digital platforms like Google, Facebook, Amazon, Yahoo and YouTube.
In response to a writ petition, the court also asked the government to form a special committee to assess the amount of their financial transactions in recent years and to submit an assessment report by June 25.
The move comes as the European Union also plans to slap a new tax on digital firms.
The European commission placed a proposal on March 21 to collect 3 percent tax from large tech companies if they make money from user data or digital advertising in a country, regardless of their bricks-and-mortar presence.
As well as social media companies making money through user data, the move would also catch online market places, such as Airbnb and Uber.
Taxmen, however, said even though there is a provision of collecting withholding income tax and VAT from revenues and payment to tech companies, an insignificant amount of tax could be collected in the absence of proper monitoring.