According to Phillip Joubert, Manager at the Centre of Tax Excellence at the South African Institute of Professional Accountants (SAIPA), social media influencing is on the rise. Just look at Mihlali, Somizi, or Bonang Matheba. Even musicians like Black Coffee are getting more involved with social media. Connecting with their thousands, sometimes millions, of followers, they have the capability to link businesses and products with a wide audience in seconds, with a simple social media post.
Social Media is in our faces, daily. Since its rise in 2005 with websites such as Facebook and Twitter, there has been no stopping the increase in this phenomenon. You only have to look around you to see people grabbing their phones to ‘Insta’ a moment, a funky cocktail, or an amazing looking plate of food. This gave rise to a whole new profession, the social media influencer. It is something we are well aware of. Look at famous (or infamous) social media influencers such as the Kardashian sisters, Charli D’Amelio, and even sports personalities such as Christiano Ronaldo (who is the most followed person on all major social media platforms), and politicians such as former US President, Barack Obama.
But a question now arises: do these social media influencers know the tax implications of their new profession?
The Income Tax Act
The definition of gross income as contained in the Income Tax Act is quite long, with its list of exclusions, special inclusions etc, but this is the basis on which any taxpayer, not just influencers, must measure whether a receipt or accrual should be included in their gross income.
What Will Be Taxed
Influencers have different ways of generating income for themselves, from endorsement deals to appearances. These types of transactions usually have a contract between the parties and the fee earned, on whatever basis, is included in the influencer’s taxable income, as it meets the definition of gross income as defined in section 1 of the Income Tax Act. When influencers do so-called ‘unboxing videos’ and review products, which are then kept by the influencer, this also meets the definition of gross income.
But what are the tax implications if an influencer buys a product, actually loves the item, and posts on their social media to promote it? Let’s say sales for the product soar, and the company sends a hamper of all their major products to the influencer to say thank you. This was done purely because the taxpayer is happy with the product, there was no contractual obligation. So, was this a gift? A donation? Or was it income?
It would be difficult for an influencer to convince SARS that the value of the hamper was a gift and completely gratuitous if the taxpayer has done work on a regular basis for the company.
What also seems to be on the rise is a new generation of influencers who try and negotiate free or discounted goods or services from various businesses, and in return do a shout-out to their followers. If you analyse a transaction such as this, the taxpayer is providing a service, being marketing, in return for consideration – a ‘free’ meal. Would this meet the definition of gross income? Most definitely yes!
Value Of Services Rendered
So, if the consideration of a ‘free’ meal, such as in the example above, should be included in the taxable income of an influencer, at what value? The answer is very simple: open market value. If the meal in question would have cost Joe Soap R800, then that is the value that must be included in the taxable income of the taxpayer.
Taxpayers should also note that, in many instances, providing a marketing service to a business is a trade as defined in the Tax Act. Therefore, within the framework of the Income Tax Act, costs incurred in the production of income should be allowed to be claimed as a deduction to reduce taxable income.
Other Considerations
In providing these services to businesses, influencers and their tax practitioners should consider the possibility that the taxpayer may actually be defined as a Personal Service Provider. Should the value of the consideration received be in excess of the threshold, VAT would need to be considered, as the definition of what constitutes a supply is quite inclusive and the services offered by influencers will most likely meet the definition.
But How Would SARS Know?
Many revenue authorities worldwide have started monitoring social media sites to identify potential high-risk influencers. A number of South African taxpayers are also well-versed in being on the receiving end of lifestyle audits, and a similar process will likely be followed. If your growth in assets doesn’t match your income and lifestyle, this raises alarms. It is very likely that SARS will follow the worldwide trend in monitoring influencers closely, as we continue to close the tax gap.
SOUTH AFRICAN INSTITUTE OF PROFESSIONAL ACCOUNTANTS
https://www.saipa.co.za
