Australian Government Proposes ‘Digital Advertising Tax’

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By Published On: May 21, 20180 Comments

In a shock statement, Treasurer Scott Morrison has referred to a levy on digital advertising as “inevitable”, reports say.

Australian retailers could face an advertising tax, as the treasury introduces a new policy that could enforce a “digital levy” on businesses operating within the online sphere.

According to reports from a number of Fairfax and News Corp titles, the digital levy arrangement will form part of a deal that aims to persuade crossbenchers to back-up the government’s tax-cut reforms.

Stirling Griff and Rex Patrick, the former Nick Xenophon Team have told The Australian that they would likely support the government’s proposed $35 billion tax-cut if it meant international technology companies would be taxed in place of everyday consumers.

Other sources claim Griff said the party is “100 percent behind a digital economy tax proposal”.

Whether or not digital advertising companies will pass the levy onto advertisers is unclear, however, the fee is expected to take the form of a sales tax through a GST-type levy paid on advertising.

Following Suit From the EU

The Australian Government’s proposed digital levy is similar to the technology tax put forward by the EU in March this year, with early reports suggesting the government could stand to raise as much as $5 billion in revenue across the union if a rate of three percent was enforced.

The EU’s proposal would mean taxing any digital companies that have more than 100,000 users in any given country, or more than seven million euros of annual revenue ($8.6 million Australian dollars).

Should a levy be introduced in Australia, publishers like News Corp who rely heavily on advertising revenue will be impacted, as well as global platforms like Google AdWords and Facebook.

If Australia were to implement a three percent advertising tax, and companies do decide to pass the fee onto individual advertisers, businesses with small online budgets will be unlikely to feel much of an impact. However, e-commerce giants entering the Australian marketplace, like Amazon, could cop the worst of the levy.

When Amazon first established its Australian presence in December 2017, the AFR predicted it could mean big changes for online advertising, and how much retailers were allocating towards ad spend to compete with the US retailer. If Amazon were to replicate its American success, by 2023 it could successfully capture between 40 and 70 percent of Australian online retail searches.

To put this into perspective, JB Hi-Fi currently occupies a three percent share of online searches in the consumer electronics category, and in as little as five years, Amazon could hold a 49 percent share in the same category.

In 2013, Amazon reportedly spent $157.7 million on online advertising in the US. While its Australian spend pales in comparison, in years to come, if it were to scale its spend to even half of this, the company could be facing close to $2.5 million in advertising taxes.

With paid searches currently accounting for between 10 and 70 percent of retailers’ advertising budgets, and these figures growing by an estimated 10 percent per year, the Australian Government stands to make back a fair chunk of its proposed income tax cuts from the retail industry alone.

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