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Will Egypt impose taxes on Facebook ads?

Egypt's parliament is considering a bill to levy taxes on social media ads, with some questioning if such a measure could even be applied.
Facebook CEO Mark Zuckerberg is seen on stage during a town hall at Facebook's headquarters in Menlo Park, California September 27, 2015. Picture taken February 27, 2015.  REUTERS/Stephen Lam/File Photo - RTX2K5PB

Since early July, the Communications Committee in the Egyptian parliament has been considering a draft bill to levy taxes on advertisements carried by Google and social media platforms such as Facebook and Twitter, in an effort to secure “tax returns for the public budget.” This proposal was preceded by a lawsuit brought by an Egyptian lawyer, Mohamed Hamid Salim, who called for social media activity in Egypt to be suspended, particularly that of Facebook, to compel them to acquire a license to operate in Egypt and to obtain tax revenue from their advertisements.

Mustafa Bakri, a member of the Egyptian House of Representatives and one of the project’s supporters, said in a phone interview with Al-Monitor, “The principle goal behind passing this draft is to increase the resources of the public budget through applying Article 60 of Stamp Duty Act 111 of 1968, which was modified in 2008 and compels the state to levy Stamp taxes on private advertisements on television, satellite networks and the internet.” He said these laws are applied in many nations, such as Britain and Israel, and they have sought over the last few years to increase their economic resources through the successful application of these laws.

Article 60 of this act grants the state the right to impose a tax on advertisements equivalent to 15% of their costs. This includes advertisements on movie billboards or broadcasts over the radio, and which are disseminated via public roads or building facades. The same applies to advertisements carried on material printed and distributed inside Egypt, including newspapers, magazines, annual calendars, guidebooks, periodicals of all sorts and advertisements broadcast on satellite channels, the internet and various broadcast cables.

Bakri said, “Neglecting to apply this law would amount to wasting public funds, and the lion’s share of responsibility for this waste falls on the finance minister, who has failed to include these companies on the list of tax paying [entities]." He stressed that the law's application bears no relationship to controlling the content displayed by these ads or imposing any additional burden on the user, and that the main goal behind this was purely to serve the country's economic interests.

Bakri added, “This issue resembles the Egyptian law that obligates print newspapers in Egypt to pay 15% of the value of the advertisements they carry as a tax to the government. We are simply calling for the same [law] to be applied to major websites as is applied to Egyptian newspapers.” Bakri expects that the Egyptian parliament will move to ratify his decision in the coming days, following discussion of the draft’s provisions that won’t exceed the bounds of what is contained in the Stamp Duty Act.

Jean Tal’at, a member of the Communications and Information Technology Committee of the Egyptian House of Representatives, largely agrees with Bakri. He told Al-Monitor, “Government monitoring of these advertisements stems from parliament members’ eagerness to pursue their national obligation to serve Egypt’s supreme interest. This lies within the Communications Committee’s main specialties, which include the extent of the propaganda capability of social media websites of late, as well as the large role played by different age groups, which in turn contributes to [these companies’] massive annual profits.” He said the law will find principled agreement from most inside parliament, and the responsibility for the next step in passing it would lie with the government’s executive agencies, which would address these companies in order to obtain taxes from the advertisements they carry.

Tal’at added, “Social media sites and Google have, in the recent past, become the primary beneficiary from the advertising market in Egypt. This is an issue whose consequences can be seen in the decline of the role of advertising agencies and Egyptian newspapers, as well as the damage to journalistic institutions for the benefit of these foreign companies that make fantastic profits through carrying these ads.”

He said, “Collecting taxes due to the state — as in every other country on the globe — is nothing to be ashamed of, nor is it a crime. On the contrary, the greater crime is being committed against the country that fails to apply its own laws and wastes billions of pounds [that could go to] the public budget due to nonapplication of its own laws."

The Egyptian parliament’s perspective, as expressed by two of its representatives, concerning the need to apply the law on these companies runs contrary to the opinion of the head of the Legislative Committee in the Ministry of Communications, Abd ar-Rahman as-Sawi. He stressed to Al-Monitor the difficulty of applying the law on the ground because of several considerations. Among them are the facts that these international corporations do not maintain major headquarters inside Egypt and the services they provide are carried out outside Egypt.

Sawi added, “The taxes are levied on revenues coming into companies or institutions registered inside Egypt while the profits of these companies are completely untethered to this.” He stressed that the question required in the first place a precise and orderly redefinition of the concept of a tax “so that we can dispel the ambiguity and controversy surrounding the matter.”

“This controversy was raised many years ago in many countries and at the United Nations. The UN was unable to come to a legal settlement on the matter,” he said, noting that “what might be studied is the imposition of taxes on online commercial transactions.”

Concerning the possibility of levying taxes via a law taxing advertisements carried by Google and social media platforms such as Twitter and Facebook, he said, "This is very unlikely. The executive agencies will not be able to move a single step on this matter, for reasons outside their control." He made clear that there was a lack of communication between parliament and the Ministry of Communications regarding this law.

For his part, Rami Ra'uf, a researcher in the field of digital liberties and digital security, also deemed the imposition of a tax unlikely in an interview with Al-Monitor. He said, "The Egyptian government's ability to apply this law [is limited] for both technical and legal reasons." He explained that there have been prior attempts by the Egyptian government to apply similar laws, but they ended in failure.

Ra’uf added, “The companies that are highlighted by the proposed law have no major facilities inside Egypt. Moreover, they are not subject to the tax law that regulates tax collection.” He said that another difficulty in applying the law lies in the fact that technical matters impact the manner in which these sites carry their advertisements.

“This law — like most previous laws that the parliament has recently sought to pass — seeks in the first place to widen the authorities of the executive agencies inside the state to observe content published on these sites,” he said, explaining that, though the apparent reason was obtaining financial resources through a taxation law, the prevailing thought behind it is to guarantee material control over the content of the advertisements carried on these sites.

Ra’uf added that the Ministry of Communications has, over the last few years, been subjected to many proposed draft laws similar to this one, and so knows how difficult applying this law will be. He clarified that major companies handle these laws by ignoring them, knowing that it is impossible for the government to apply them.

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