Let’s Talk Tax
By Edward L. Roguel
Over the past decade, we have seen exponential growth in number of social media users. Social media users are now the equivalent of 57% of the world’s population, and it is expected that this figure will continue to increase. Social media also influences consumer spending. Studies show that more than 50% of social media users use such online platforms to research products and more than 60% are likely to purchase products and services based on social media referrals.
Accordingly, more companies are now veering away from traditional advertising and moving to social media, relying on influencers to promote their products and services. Influencer marketing has become a vital part of overall marketing strategy and is considered an effective means to communicate with a brand’s target audience to improve awareness. Hence, social media influencers can earn substantial amounts from sponsorships and ad revenue, among others.
Social media influencers have built reputations for their knowledge, expertise, and/or interest in specific topics. They make regular posts on their preferred channels, such as YouTube, Instagram, Facebook, Snapchat, and TikTok, and generate a large number of followers. Influencers are not limited to celebrities. Even an average person, and even children (also known as “kidfluencers”) can be influencers on social media.
Just like any other person or corporation who earns income, influencers are also subject to tax. The Bureau of Internal Revenue (BIR), however, has noted that some of these influencers are not even registered with the BIR or are not paying the correct amount of taxes. Thus, the BIR issued Revenue Memorandum Circular (RMC) No. 97-2021 to remind these influencers of their obligations under tax law and the possible consequences of their failure to pay taxes.
As stated in RMC 97-2021, influencers, other than corporations and partnerships, are classified for tax purposes as self-employed individuals or persons engaged in trade or business as sole proprietors. They are required to register with the BIR Revenue District Office (RDO) having jurisdiction over the place where the head office is located or over the taxpayer’s place of residence. In case, however, they are already registered with the BIR but only as employees, they need to update their registration information with the RDO where they are registered, specifying therein any change in type and other taxpayer details.
Influencer incomes are generally considered business income subject to regular income tax, except those subject to final tax or exempt from tax under existing laws. Business income subject to regular income tax includes, among others, any amount received, whether in cash or in kind, from YouTube partner programs, sponsored social and blog posts, display advertising, becoming a brand representative/ambassador, affiliate marketing, co-creating project lines, promoting own products, photo and video sales, digital courses, subscriptions, e-books, podcasts, and webinars. To constitute gains or profits from the conduct of trade or business, payments must be received by influencers in consideration for services rendered or to be rendered, irrespective of the manner or form of payment.
Influencers are subject to a graduated income tax rate of 0% to 35% based on net taxable income (income less business expenses), except those considered non-resident aliens not engaged in business in the Philippines (NRANEBs) which are subject to 25% tax based on gross income. For citizens and resident alien taxpayers who are registered as non-VAT, if the total gross sales receipt does not exceed P3 million during the taxable year, they may choose to avail of the 8% tax based on gross sales or receipts, including other income, subject to compliance with the current tax regulations. Such tax is in lieu of the graduated tax and percentage tax. The option to be taxed at 8%, however, must be made in the first quarter income tax return or on the initial quarter return of the taxable year after the commencement of a new business. Such election is irrevocable and no amendment of option may be made for the taxable year. Hence, if they have filed their first quarter return and the option to avail of itemized deductions has been made, they may no longer avail of the 8% tax. Note that whether a taxpayer is using the graduated or the 8% rate, the first P250,000 is not subject to income tax under the TRAIN Law.
Resident citizens (RC) are taxable based on their worldwide income, i.e., income earned within and outside the Philippines. Non-resident citizens (NRCs), resident alien (RAs), and non-resident aliens (NRAs), on the other hand, are taxable only on their income earned within the Philippines.
In addition to income tax, an influencer is also subject to business tax of either the 3% percentage tax or the 12% value-added tax. The 3% percentage tax may apply if the total gross receipts and other non-operating income for the year does not exceed P3 million. Otherwise, the 12% VAT is applicable. The applicable percentage tax rate is 1% from July 1, 2020 until June 30, 2023. It will then revert to 3% of quarterly sales/receipts after this period.
Another option influencers may consider, if they qualify, is to register as Barangay Micro Business Enterprises (BMBEs) pursuant to Republic Act (RA) No. 9178. A duly registered BMBE is entitled to exemption from income tax for two years, which may be renewed. BMBEs’ total assets, including those arising from loans but exclusive of the land on which the particular business entity’s office, plant, and equipment are situated, cannot exceed P3 million. A BMBE may be a sole proprietor or a corporation. Services rendered in connection with the practice of a profession by a person duly licensed by the government after having passed a government licensure examination are not qualified to register as BMBEs.
As self-employed taxpayers, influencers are also considered withholding agents. Hence, they are required to withhold creditable/expanded withholding tax, final tax on compensation of employees, and other withholding taxes, if applicable.
Other than filing the required tax returns and paying taxes, influencers are also required to register and maintain their books of account and comply with other requirements imposed by the BIR, as failure to do so may result in significant penalties.
I believe many of our countrymen are willing to help the government by paying the right taxes. Some taxpayers, however, are discouraged because of the tedious process of registering and complying with requirements. Regardless of the size of business, tax compliance requirements are, in general, the same for all taxpayers. Hence, different groups have long been advocating for more simplified tax filing and reportorial requirements, particularly small to medium enterprises.
To address these concerns, the BIR is embarking on a digital transformation program to improve its services and achieve efficient collection performance. The digitalization of services has been in the pipeline even before the pandemic, after it recognized the need to adapt to and take advantage of the fast-evolving digital economy. Last year, the BIR issued Revenue Memorandum Order No. 27-2020 to outline its digital transformation roadmap for 2020-2030, streamlining tax filing and collection. As more people are now transacting digitally, there is renewed hope that the BIR will move forward with its digitalization program.
While the BIR is exerting efforts to address taxpayer questions and concerns, let us also do our share by complying with tax laws, rules, and regulations. Influencers can support our country not only by complying but also by encouraging their followers to pay much-needed taxes to fund government projects.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Edward L. Roguel is a partner of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.