Ways to generate tax revenue from social media

Social media refers to online platforms and applications that enable users to create and share content or participate in social networking. These platforms facilitate communication, collaboration, and information sharing among users through various formats such as text, images, videos, and audio. Social media significantly impacts how people communicate, interact, and consume information, influencing various aspects of their daily life, such as personal relationships, business, politics, entertainment, and education.

Till 2023, there are over 4.89 billion social media users globally, steadily growing yearly, according to Statista. On the other hand, according to the data provided by OOSGA, a market research and consulting firm, there were about 50.3 million active social media users in Bangladesh throughout 2022. The number of social media platforms is hard to determine, as numerous outlets are available, ranging from global giants like Facebook, Instagram, Twitter, and LinkedIn to smaller, niche, and regional media.

Social media offers various opportunities for individuals and organisations to profit in revenue, engagement, brand awareness, and community-building. The key to success lies in understanding the target audience, creating valuable content, and utilising the right platforms and strategies to reach and engage users effectively.

According to Statista, ad spending in the Social Media Advertising market is projected to reach US$207.10 billion in 2023. This figure includes revenue generated from paid advertising on platforms like Facebook, Instagram, Twitter, and LinkedIn.

Social media advertising revenue has been growing consistently over the years, and it is expected to continue growing as more businesses invest in digital marketing and expand their online presence. Factors contributing to this growth include increasing social media users, advancements in targeting and personalisation capabilities, and the popularity of various formats like video and interactive ads.

It is essential to keep in mind that the revenue generated from social media is not limited to advertising alone. Many other monetisation methods, such as influencer marketing, affiliate marketing, and e-commerce sales also contribute to the overall revenue generated by the social media ecosystem. However, obtaining an exact figure for all these revenue streams combined is difficult due to the complexity and diversity of the industry.

The Bangladesh government can earn tax revenue from social media platforms and related activities in several ways. The government could impose taxes on advertising revenue generated by social media platforms within the country. This could involve taxing the platforms directly or requiring local advertisers to pay taxes on their ad spending.

The government could impose a VAT or sales tax on transactions that occur on social media platforms, such as e-commerce sales or in-app purchases. This would require platforms to collect the user tax and remit it to the government.

The government could enforce tax regulations on income earned by social media influencers and content creators based in Bangladesh. This may include income from sponsored content, affiliate marketing, and other monetisation methods. The government must ensure that these individuals report their income accurately and pay taxes accordingly.

If social media platforms have local subsidiaries or offices in Bangladesh, the government can collect corporate taxes on the profits generated by these entities.

The government could consider implementing a digital services tax, targeting large social media platforms and other digital companies that operate in the country but may not have a physical presence. This tax would typically be levied on the revenue generated by these companies within Bangladesh, regardless of where they are headquartered.

The government could impose withholding taxes on cross-border social media service transactions, such as advertising payments, royalties, or fees for technical assistance. These taxes would be collected from the payer and remitted to the government.

To successfully implement these tax strategies, the Bangladesh government would need to develop clear regulations and guidelines, ensure compliance from social media platforms and users, and invest in the necessary infrastructure and resources for tax administration and enforcement. Additionally, international cooperation and agreements may be required to address cross-border transactions and taxation of digital services.

However, there are several barriers the Bangladesh government may need to overcome when attempting to generate tax revenue from social media platforms and related activities. Many social media platforms operate internationally and may not have a physical presence in Bangladesh. Enforcing tax regulations on these platforms or cross-border social media services transactions can be challenging.

Social media platforms and users may use various strategies to evade or avoid taxes, such as shifting profits to low-tax jurisdictions, underreporting income, or using shell companies. The government must invest in tax administration and enforcement to counter these tactics effectively.

Social media platforms may not readily disclose detailed information about their revenue, user base, or advertising activities in Bangladesh. This lack of transparency can make it difficult for the government to accurately assess and collect taxes from these platforms.

Social media platforms have diverse and evolving business models, with multiple revenue streams that may require more work to tax effectively. The government would need to develop specific tax regulations and guidelines that address these complexities while remaining adaptable to changes in the industry.

Imposing taxes on social media platforms and related activities would require the government to develop and enforce compliance measures, which may be resource-intensive. This includes investing in infrastructure, technology, tax administration and enforcement personnel.

Taxing social media platforms and related activities may need more support from users, influencers, and businesses that rely on these platforms for income or marketing. The government must navigate these concerns and develop policies balancing revenue generation with stakeholder interests.

To overcome these barriers, the Bangladesh government must develop a comprehensive and adaptable tax strategy, invest in enforcement and administration resources, and collaborate with international partners to address cross-border taxation challenges. It is also necessary to establish clear tax regulations that address the unique challenges posed by social media platforms and their diverse business models. 

The government must also encourage social media platforms to provide greater transparency on their revenue, user base, and advertising activities in Bangladesh. 

By implementing these strategies, the Bangladesh government can overcome the barriers to earning tax revenue from social media and develop a more robust and sustainable system for digital taxation.

Dr Matiur Rahman is a researcher and development worker.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.