JULY 30 — Last week, on my Instagram feed, there was a posting of a local social media “influencer” on holiday at an upscale hotel in Kuala Lumpur. There were a series of photos of the influencer, one of which was of her and her family at the spa, looking all happy and relaxed.
One of her photos was at a restaurant in the hotel enjoying a sumptuous dinner. All postings were labelled “sponsored” and of course the name of the hotel was displayed. Which meant that the stay and accompanying hospitality were complimentary.
Social media marketing is a big business at the moment, largely thanks to the Internet. The way we listen and communicate has changed. New opportunities to make money have arisen, thanks to platforms like Facebook, YouTube, Instagram, etc. Blogging once used to be a hobby. Now it has become the main source of income for some.
Who exactly is an influencer? Generally, an influencer refers to someone who has the power to affect the decisions of others because the individual has a large following on social media. Advertisers love to engage influencers because of their power to sell. Many big brands are relying on social media celebrities to endorse and promote their products or services.
Cristiano Ronaldo was recently seen endorsing a nutritional product. With followers of over 232 million, one can imagine the reach of the endorsement. Naturally, social media marketing has taken over conventional marketing.
As an influencer, are these groups of people liable to pay tax on the sponsorships, endorsements, freebies, etc they receive? From a Malaysian perspective, we adopt the territorial scope of taxation whereby income derived from or sourced in Malaysia is subject to tax.
Income is said to be derived from Malaysia where the activities generating such income are carried out in Malaysia. This principle applies to social media marketing activities as well. Whether your business is operated full-time or part-time, there is a need to pay tax on the sponsorships, etc to the extent that they are income in nature.
It is also important to distinguish between activities which are performed repeatedly or habitually in exchange for monetary or non-monetary benefits viz a viz activities that are carried out occasionally as a hobby. The latter is generally not considered as carrying on a business and the revenue derived therefrom is not taxable.
Now, if we apply the same principles to the influencer on holiday at an upscale hotel in Kuala Lumpur, the stay, spa, meals and any other hospitality benefits received should be taxable on the influencer.
However, as most social media influencers are not registered as carrying on a business, such receipts may not even be reported for tax purposes. There is also a lack of clarity from the tax authorities on what receipts are taxable and what are not.
Having recognised the existing ambiguities, the tax authorities in many jurisdictions have come up with guidelines of some sort to tap into social media marketing activities. The Inland Revenue Authority of Singapore is one of them.
From a Singapore tax perspective, if you are an influencer, all payments and benefits received from carrying on of blogging, advertising or any other activity performed on social media as a trade or business constitutes gains or profits from a trade or a business and therefore, taxable receipts.
This includes all monetary and non-monetary payments and benefits-in-kinds if they are received in return for services rendered or to be rendered by bloggers or social media influencers. This also includes any benefits whether monetary or in-kind provided to the families and friends of bloggers or social media influencers.
One exception to the above rule is that products or services given on an ad-hoc basis for one-off consumption or testing or where the value of each product or service received does not exceed S$100 (RM 308)are not required to be declared. It is simply not practical to bring to tax a single lipstick that you receive as an unexpected marketing gift from a cosmetic brand.
There are many grey areas that need to be addressed, such as which jurisdiction should the receipt be taxed, how does one go about registering a business and a tax file, how do you determine the value of the benefit to be taxed, what are the deductible expenses, and what are the documentation requirements and the tax filing deadlines.
Social media influencers, the next time you receive a freebie, endorsement or sponsorship, do reach out to a tax professional for proper advice. The last thing you want to get yourself into is being slapped with a heavy tax bill. It is not something you would like to receive as “likes” from followers.
* Thisha Gunasilan is a director of Tricor Taxand Sdn Bhd. All views expressed are the writer’s own.
** This is the personal opinion of the writer(s) or organisation(s) and does not necessarily represent the views of Malay Mail.