Social media is a means of interaction among people in which they create, share, and/or exchange information and ideas in virtual communities and networks. As the use of technology advances, social media has become an avenue not just to communicate with other people but also a means of advertising and marketing which led to the thriving of Influencer marketing.
Social media influencers refer to individuals or corporations, receiving income, in cash or in kind, from any social media sites and platforms (YouTube, Facebook, Instagram, Twitter, TikTok, Reddit, Snapchat, etc.) in exchange for services performed as bloggers, video bloggers or “vloggers” or as an influencer, in general, and from any other activities performed on such social media sites and platforms.
Last August 16, 2021, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular 97-2021 to provide guidelines on the tax obligations of social media influencers.
The tax compliance requirements for social media influencers are just the same for all taxpayers. This includes registration with the BIR and/or updating their registration information, keeping a book of accounts, filing returns and paying taxes, and withholding tax and remitting the same to the BIR. Accordingly, social media influencers shall be liable to income tax and business tax unless exempted under the Tax Code, as amended, and other existing laws.
For tax purposes, social media influencers other than corporations and partnerships are classified as self-employed individuals or persons engaged in trade or business as sole proprietors. Income derived by the social media influencers may include income from YouTube Partner Program, sponsored social and blog posts, display advertising, becoming a brand representative/ambassador, affiliate marketing, co-creating product lines, promoting own products, photo and video sales, digital courses, subscriptions, e-books and podcast and webinars.
To constitute gains or profits from the conduct of trade or business, the payments must be received by a social media influencer in consideration for services rendered or to be rendered, irrespective of the manner or form of payment. So, if a social media influencer receives free products in exchange for the promotion thereof on his/her/it YouTube channel or other social media accounts, he/she/it must declare the fair market value of such products as income. Royalties in another country, including payments under the YouTube Partner Program or other social media platform, shall also be included in the computation of the gross income of the social media influencer and shall be subjected to the schedular or corporate tax rates.
In computation of income tax, all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to, the development, management, operation and/or conduct of the trade, business or exercise of profession. These may be claimed as deductions provided that they are directly and exclusively related to the production or realization of the income and can be substantiated with sufficient evidence, such as BlR-registered receipts and invoices.
The common business expenses that may be deducted from their gross income may include, but not limited to:
- filming expenses such as cameras, smartphones, microphone and other filming equipment;
- computer equipment;
- subscription and software licensing fees;
- internet and communication expenses;
- home office expenses such as proportionate rent and utilities expenses;
- office supplies;
- business expenses such as travel or transportation expenses related to their business;
- payment to an independent contractor or company for video editing;
- costume designer;
- advertising and marketing costs such as cost of contests and giveaway prizes;
- depreciation expense, and;
- bank charges and shipping fees.
The taxpayer may elect Optional Standard Deduction (OSD) in lieu of the itemized deductions. OSD is a standard deduction not exceeding forty percent (40%) of gross sales/receipts in the case of individual taxpayers, or 40% of its gross income in the case of corporations. No substantiation is required for the OSD. To be entitled to OSD, however, the taxpayer must signify in the return the intention to elect OSD; otherwise, he/she/it shall be considered as having availed of the itemized deductions.
Aside from income tax, Social media influencers are also liable for business tax, which may either be percentage or VAT. Self-employed individuals whose gross sales or gross receipts and other non-operating income do not exceed the VAT threshold of P3,000,000.00 shall have the option to avail of the eight percent (8%) tax on gross sales or gross receipts and other non-operating income in excess of Two Hundred Fifty Thousand Pesos (P250,000) in lieu of the graduated income tax rates and percentage tax.
An attempt in any manner to evade or defeat any tax imposed under NIRC or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Five Hundred Thousand Pesos (P500,000) but not more than Ten Million Pesos (P10,000,000) and suffer imprisonment of not less than six (6) years but not more than ten (10) years, provided that the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
A substantial under-declaration of taxable sales, receipts or income, or a substantial overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return, and failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions shall render the taxpayer liable for substantial under declaration of sales, receipts or income or for overstatement of deductions. Therefore, social media influencers are advised to voluntarily and truthfully declare their income and pay their corresponding taxes without waiting for a formal investigation to be conducted by the BIR to avoid being liable for tax evasion and for the civil penalty of fifty percent (50%) of the tax or of the deficiency tax.
Tax obligations of social media influencers are just a reminder that the tax system should be equitable to all citizens. In conclusion, all are included and subject to tax, unless otherwise exempt. Whether web designers, online sellers or gamers or social media influencers are included and taxable under the tax code.
Ref: RMC 97-2021
