The Political Economy of Digital Advertising in the South Caucasus and Central Asia: Who Benefits from Digitalisation?

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A decade ago, digital advertising in the countries of the South Caucasus and Central Asia was seen mainly as an additional sales channel alongside television, outdoor advertising and local media.

Today, it is part of a broader economic transformation. As more companies sell goods and services online, the platforms through which businesses reach consumers play an increasingly important role. 

This shift is changing not only companies' marketing strategies, but also the flow of money within the economy.

A company may be based in Baku, Almaty or Tbilisi, manufacture a product domestically and sell it to a local consumer. At the same time, it may pay a foreign platform to run its advertising campaign. The resulting commercial chain helps a local business acquire a customer, generates revenue for a digital platform and creates a cross-border payment.

For any economy, it is important to understand how the value created around this activity is distributed. Meta, Google and other platforms provide genuine services: advertising infrastructure, algorithmic targeting, access to audiences and performance-measurement tools. For businesses, these services can mean higher sales and broader access to markets. For governments, the picture is different, because the service provider may be based outside the country while the advertiser, the consumer and much of the economic activity remain within it.

This is where digital advertising becomes a matter of political economy.

From Ad Budgets to Cross-Border Money Flows

Traditional advertising was more closely tied to domestic market participants. A company could buy advertising space from a local newspaper, television channel or agency. A significant share of that spending therefore remained within the national economy, while tax obligations arose within the domestic system.

Digital advertising has changed this chain. A local company can now pay a platform registered in another jurisdiction for a campaign aimed at consumers inside its own country.

This does not mean that an advertising payment represents an economic loss. Effective advertising can generate additional activity: a company sells more, hires staff, purchases raw materials and pays taxes on its operations. However, part of the revenue from the digital service itself goes to a foreign provider. What matters to the state, therefore, is not only the size of the digital market, but also how cross-border transactions are incorporated into the tax system.

The concentration of digital advertising is clearly visible at the global level. In its December 2025 forecast, WARC estimated that Alphabet, Amazon and Meta would account for 56.1 per cent of advertising spending outside China in 2025, equivalent to about $556.6 billion. Their combined share was forecast to rise to 58 per cent in 2026.

This does not mean that the three companies capture all global digital advertising spending. The figure does, however, show how much of the wider advertising market is concentrated around a handful of global technology platforms. For smaller national economies, this creates dependence on digital infrastructure controlled by companies outside their tax jurisdiction.

How Countries Are Trying to Reclaim a Share of Digital Value

The same advertising transaction looks different depending on the market participant. For a local business, it is an investment in customer acquisition and future revenue. For a digital platform, it is income from providing advertising infrastructure. For the state, it is a potential tax base. Countries have therefore introduced mechanisms designed to bring cross-border digital services within their national tax systems.

Some states apply VAT to electronic services supplied by foreign vendors. Others impose separate digital services taxes.

Türkiye is a notable example of the second approach. Its Digital Services Tax took effect on 1 March 2020 and applies, among other things, to revenue from digital advertising. Since 1 January 2026, the rate has stood at 5 per cent.

Countries in the South Caucasus have also introduced, or are introducing, digital-services taxation mechanisms. In Azerbaijan, mandatory electronic VAT registration for non-residents that provide digital services to individuals and exceed $10,000 in annual B2C turnover takes effect on 1 September 2026. In Armenia, non-residents providing electronic services use the E-VAT system. Georgia operates a separate VAT Portal for Digital Services for foreign providers.

The rules differ, but a common principle has emerged: value generated through digital activity connected to a local market can be brought within the national tax system.

In Central Asia, Kazakhstan offers the clearest results. At a briefing in March 2026, the State Revenue Committee reported that, since the mechanism was introduced, the budget had received 146.5 billion tenge in VAT from foreign digital companies, including 57.6 billion tenge in 2025 alone. By then, 123 foreign taxpayers were registered in the system, including Meta, Google, Apple, Microsoft, TikTok and OpenAI.

These receipts cover a broader range of electronic services and cannot be treated as tax revenue from digital advertising alone. Even so, the result shows that cross-border digital activity can become a substantial source of budget revenue.

Similar mechanisms operate in Uzbekistan and Kyrgyzstan. Uzbekistan has applied VAT to electronic services supplied by foreign companies since 2020, while the corresponding regime in Kyrgyzstan has been in effect since 2022. In both countries, the rules cover electronic services, including online advertising. Publicly available data on actual revenue, however, are less detailed than in Kazakhstan.

Digital taxation has therefore become a practical policy tool across the region. But the amount of tax collected alone does not show how beneficial the system is for the wider economy.

Taxation or Building Domestic Digital Infrastructure?

Taxation is not the only way to reduce dependence on global platforms. Large markets with well-developed digital infrastructure can rely more heavily on domestic platforms and advertising ecosystems. In South Korea, NAVER plays a significant role, while in Russia, Yandex has built a large advertising infrastructure of its own.

For most countries in the South Caucasus and Central Asia, building a full-fledged alternative to Meta or Google is far less realistic. Their domestic markets are relatively small, while proprietary infrastructure requires major investment, advanced technology, a large audience base and enough advertisers to sustain it.

A unified regional platform is not an obvious solution either, because the countries differ in market size, language, regulation and digital ecosystems.

For most of the region, the more practical path is therefore a combination of taxing cross-border digital services and developing local digital companies, advertising platforms and marketplaces wherever the market can support them.

The Cost of the Tax Approach

The tax approach has an important limitation. If a tax raises a digital platform's costs, the platform may pass part of that burden on to advertisers. In that case, some of the added cost ultimately falls on local businesses.

This effect is now visible in several markets. From 1 July 2026, Meta introduced location fees for advertisers to offset digital services taxes and other local regulatory costs. The surcharge is 5 per cent for Türkiye and Austria, 3 per cent for France, Italy and Spain, and 2 per cent for the United Kingdom.

For policymakers in the region, this is an important economic signal. A state may increase its tax revenue while, at the same time, raising the cost of digital advertising for local companies. A system's effectiveness cannot therefore be judged solely by the amount of tax it collects.

Both budget revenue and the consequences for business matter.

What Is Actually Better for the Region's Economy?

Digital taxation affects the economy along several dimensions at once. It can increase government revenue, create more comparable tax conditions for local and foreign providers, and return part of the value generated by digital activity to the national economy.

But there is a trade-off. If a platform passes all or part of its added costs on to advertisers, local businesses pay more for access to digital audiences.

The most effective approach for the countries of the South Caucasus and Central Asia is therefore neither the highest possible tax rate nor an attempt to replace global platforms with domestic ones. A more sustainable system is one that secures adequate budget revenue, maintains fair competitive conditions and keeps the cost of digital advertising manageable for local businesses.

Kazakhstan shows that cross-border digital services can already generate significant revenue for the state. But the volume of tax receipts alone does not prove that a model is economically optimal. For smaller economies, it is especially important to establish how much of the burden ultimately falls on the platform and how much is passed on to the local advertiser.

The challenge for the region's digital policy is not to restrict the use of global infrastructure. It is to integrate that infrastructure into the national economy in a way that supports local business, generates tax revenue and avoids driving up the cost of digital advertising excessively.

That is the central economic question of digital advertising: not simply how much money flows through global platforms, but how much of the value created around them continues to work for the national economy.

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News Politics Economy Digitalisation South Caucasus Central Asia