Increasing revenue for government 🤔 | #7
It's random stuff about Nepal
Like Srilanka, Nepal is in deep problem with finances. With 6-7 months of imports worth of USD left in reserve, Nepal too might fall into liquidity crunch first and then to economic crisis. So, I was running my mind to increase the revenue for Nepal government, and I came up with the ideas that I knew about. So, here is my solution:
There are over 50,000 digital ads agency in Nepal. Ad economy of Nepal is supposed to be around $2.5B but it sees less than 10% of it. It is because Nepalese use offshore accounts, relatives in foreign countries, and crypto to fund their ads and store money in foreign countries.
Today I am going to propose a simple yet effective solution for it.
Overview
🥅 Incentives or lack of it
🤝 Solution
🔢 Numbers
🥅 Incentives or lack of it
Digital businesses have a lot of needs like CRM, digital ads, and analytics, and all of them cost money. Generally, a digital business tests its viability by running its service or product or services with a small number of users (10 to 100). When a company has data on profitability, it scales. If it scales properly, it will be in need of recurring spending on digital tools as well for the company to grow.
That’s where the problem arises for Nepalese entrepreneurs. I have identified the following to be the problem and the reason behind the problem.
⛩️ Barrier to entry: The barrier to entry is significantly low for a business for testing as the Government of Nepal initiated an incredible step ahead with a $500 dollar card. Either one or many of them will be enough for the test and validation. But, scaling a product that takes millions of dollars, won’t be enough.
Now, here comes the barrier to entry which is really high. Generally, the margin in digital products is 15%-30% and they depend on the economy of scale, meaning for them to earn they need to be used by millions of users. And for them to acquire millions of users, they will need to go via digital ads in order to be competitive. I have talked to many developers, and marketing agencies and concluded that the average cost of running an ad increases by 30% for Nepalese because of all the taxes incurred. If an American uses $1 to spend to acquire 1 user, a Nepali has to use 1.3% to acquire the same user, the Nepali company is on the back foot from the start. The reason is VAT from the government, service charge from advertisers, and withholding. And, all of them need to be prepaid. So, a business needs huge capital to start, they need that capital in cash, and their margin drops to 0% (if they go through a legal route).
🥅 No incentive: A businessman searches for an incentive to spend or store money. They will only keep money in a country if that money is going to make them more money. As we saw in the barrier to entry, they have no incentive to spend 30% more in comparison to a businessman in the US. Now, let’s talk about incentives to bring the money back. There is none. The money can only be used to buy properties and cars. From my experience what I have seen is there is a shell company in a foreign country, they use the shell company to operate a business without paying the extra incurred cost (spend and make money), and only bring adequate money back to Nepal for comfortable living. So, the government is losing around $300 million per year because we don’t create any incentive for our digital marketers or advertisers.
🤝 Solution
My solution is either for a government or a private company to focus on the exact issue that developers and digital marketers are facing:
Remove the barrier to entry: Right now the issue developers are facing are they pay 30% purely on fees, so the idle case would be to either decrease it to 0% or as low as 1.5%. The question remains for the government to take 30% of the lower amount and encourage developers and digital marketers to hide their money offshore or delay taking the charges and take a higher amount on future profits.
Increase the incentive to bring money back to Nepal: Ease of spending for developers and digital marketers is a great way to bring the profits generated from the product back to Nepal because with lower chargers, and relatively lower tax brackets in Nepal, it’s better for the USD to be in Nepal than in the US.
Track everything: What if we decrease the charges while sending the money, but the developer or marketer doesn’t bring back money after the profit? We can track the financial data using a system similar to YSO Corp uses. It automatically tracks all the ad campaigns ran for a particular app, and money made through it.
Now once the government has spent and earnings, you can calculate profit and charge 30%-50% on the profit.
🔢 Numbers
An average digital ad company spends around $50,000 per year and profits 40%-50%. That’s a business of $2.5b, a profit of $1b, and missed income of at least $300 million for the Nepal government. With my solution, government can make as much as $300 million per year.