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A Break Down of VAT on Facebook Ads In South Africa

02 February 2021 | 0 comments | Posted by Che Kohler in nichemarket Advice

How Vat changes Facebook ads

The growing digital economy has changed how we conduct business, especially with trends like working from home growing faster than ever before. Online transactions continue to grow year over year in South Africa. As this digital economy absorbs more capital, it starts to play a more significant role in the distribution of income and expenditure, which has been so far left to its free market in South Africa.

Up until 2019, the South African government did not interfere in the growth of digital products and SAAS businesses. That has since changed as the local government starts to consider the cost of development in this sector.

Naturally, any market that has less regulation and tax on it will continue to grow faster, provide more jobs, efficiently allocate capital to where it's used best. Still, it also means fewer revenue opportunities for government.

Is digital tax a little premature?

In many developed nations, governments have kept eCommerce and SAAS product growth in their sites, but some are not willing to sacrifice growth. The thinking is as the market matures and creates more jobs, it increases the tax base of companies and employees paying tax. Having fewer tariffs on digital products allows their market to remain competitive internationally and provide small business with an equal playing field.

It's no secret that the South African government has come under pressure in collecting tax revenue to fund its project and thus the motivation to pull the trigger earlier.

When did VAT apply to Facebook ads in South Africa?

Since the beginning of 1 May 2019, Facebook ads in South Africa are subject to a value-added tax (VAT) at the applicable local tax rate. This tax applies to advertisers whose 'Sold To' country on their business or personal address is set to South Africa.

If you are VAT registered in South Africa

Add your VAT identification number (VAT ID) in the Ad Accounts Settings of Ads Manager. You don't have to enter a VAT ID. However, if you're registered for VAT and provide your VAT ID, it'll show up on your ads receipts. This may help you recover any VAT you paid to South African tax authorities.

VAT is added whenever you're charged for your ads, regardless of whether you're purchasing Facebook ads for business or personal purposes. Because VAT is added on top of charges, you won't reach your billing threshold faster, but you may be charged more than your billing threshold amount.

If you pay for Facebook ads with a manual payment method, VAT is accounted for at the applicable rate when your ad account is funded to determine the total balance available.

How VAT will affect social media marketers and budgets

South African marketers have embraced digital marketing with more agencies and brands coming online and allocating larger marketing budgets away from ATL to digital.

Platforms like Google and Facebook capture most of the South African digital spend, but they are not the only ones who fall under these rules. All digital platforms servicing South African businesses need to now charge VAT, LinkedIn, Instagram, Twitter, Bing and more.

  1. VAT of 15% will now be added to every Rand spent on advertising through search, display and other social advertising platforms.
  2. Advertising spends that remain the same will more than likely result in fewer impressions, fewer clicks, fewer conversions, and ultimately less business.
  3. With 15% of a paid digital advert budget now going to VAT charges, clients should ideally increase their spends by 15% – 20% to compensate.
  4. The responsibility falls on advertisers to notify clients participating in paid online advertising regarding the recent implementation of VAT on these services.

Increasing the price for businesses

Facebook and Instagram have already fully integrated themselves with South African consumers, and they're not going to ditch these platforms anytime soon. South Africa is also a small market for Facebook when measured globally and in a sense, is subsidised by the income from other nations.

If we consider these two factors, Facebook is in the driving seat and are not going to be absorbing the cost that the South African government has placed on their service. These costs are naturally passed on to the advertisers, making Facebook ads more expensive for local businesses.

If you're spending R10 000 on Facebook, the cost of an average local budget you're losing R1500 to VAT, which can be a considerable amount of clicks. The more clicks you lose, the more it eats int your margins and this forces some businesses pricing models to no longer make sense and even forcing them into the unprofitable territory.

Additionally, since it applies to all business, competition for those pricier clicks heats up further eroding margins for brands in competitive niches.

A crushing blow to small businesses

The introduction of VAT also plays in favour of more prominent business and isn't ideal if you're a smaller company that's not VAT registered. Since all local companies are now required to pay VAT on Facebook advertising budgets, the larger VAT registered companies will get cheaper ad costs than non VAT registered companies.

Small businesses and freelancers will not only have to deal with pricier ads to make their businesses work online, but they also need to deal with additional admin.

If you're a small business that's planning on spending a ton of money on Facebook ads, then it might be time to look into getting VAT registered.

Contact us

If you would like us to improve the advertising for your site or want to know more about digital marketing for your business, then don’t be shy we’re happy to assist. Simply contact us

Are you looking to promote your business?

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If you require a more detailed guide on how to create your profile or your listing, then we highly recommend you check out the following articles. 

Recommended reading

If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on Facebook marketing.

Tags: Facebook, Tax, Social Media Marketing

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