Facebook face-off

Ansa McAl chairman Norman Sabga faced some flak last week for suggesting that social media giant Facebook was one of the primary contributing factors to the conglomerate’s media arm Guardian Media Ltd’s $11 million loss for the first six months of this year.

The story was one of Newsday’s most popular last week, generating significant online feedback – notably on the same seemingly maligned platform.

Mr Sabga’s point was that these companies don’t pay taxes, nor do they have any major investment in the country, such as employees or property on which they have to pay taxes, and hence have a significant competitive advantage.

Much of the conversation in response, however, suggested that his argument was a cop-out, an excuse for substandard content creation and a lack of innovation.

What he is suggesting is hardly revolutionary. Other countries, including the EU, Australia and India already add certain value added taxes (VAT) to advertising rates. Facebook even has a special information page to help customers understand the process. These tech companies, while they may not have significant physical presence in a country, nonetheless generate vast amounts of income from overseas markets.

The story isn’t even foreign to TT – Uber, which left the country last year, to the chagrin of citizens happy for an alternative to public transport – argued that because it was a tech company and not technically an employer, it did not have to pay standard taxes.

The government disagreed, because as far as it was concerned, Uber, which receives 25 per cent of its drivers’ fares, was still earning an income from within TT.

Facebook and search engine juggernaut Google are by far the biggest platforms for advertisements in the world. Both companies make up a massive 60 per cent of all advertising in the US, or about US$65 billion in revenue. About 85 per cent of these multi-billion corporations’ revenue is made up from advertising.

In terms of overall advertising, digital spend is projected to overtake traditional platforms (TV, radio and newspapers) by nearly US$10 billion (US$129.3 billion versus US$109.5 billion), according to emarketer.com.

It’s undeniable that these platforms have helped fledgling entrepreneurs with marketing and raised the profiles of several social commentators, but the fact remains that for most enterprises that rely on these traditional outlets of communication, online marketing has made a significant dent in their revenues and profitability.

Facebook and Google also remove the middleman, making it so easy to place ads that even advertising companies that rely on traditional media for bookings and placements are hurting.

For platforms that rely on ad revenue, this has totally upended the business model. Newspapers are the most glaring example, as sites like Facebook marketplace and Craigslist have made classified ads almost obsolete. That’s not to say innovation isn’t necessary and it has well been argued that traditional platforms have taken too long to recognise and adapt to the changes in advertising and especially consumer trends. Core demographics now are millennials and their successors, Generation Z, who are for the most part digital natives. They get their content online, and unless media companies meet them there, they will miss out on that market.

At the same time, the State’s responsibility should be for fair play. To be clear, this is not protectionism, but rather, enforcing a more equitable playing field for competition and innovation – and of a way of earning revenue. TT has already implemented the online tax shopping tax (applicable to goods shipped via air), and while controversial, it does not seem to have stopped people buying things over the internet.

Taxes are burdensome and in a recession, often seem deeply unfair, especially to the consumer, onto whom some of that burden is shifted.

But Mr Sabga’s grievance shouldn’t just be dismissed as one-per-cent griping. It’s a rational argument and deserves consideration.