RECENTLY, the Bureau of Internal Revenue (BIR) issued Revenue Memorandum Circular (RMC) 97-2021, reminding social influencers about their tax obligations. It reminded them to register as taxpayers and report their income properly, as well as provided illustrative examples on how they should calculate their income taxes. The RMC did not actually state something new; it did not impose separate tax requirements on social media influencers. It merely set out the various tax obligations and rules (including withholding tax and tax filing obligations) which an influencer must comply with. It also reminded them of the serious penalties for non-compliance with their tax obligations under existing tax laws, rules and regulations.
So, why should social influencers be taxed?
They Earn Taxable Income
They should be taxed because they are not above the law, and like any other taxable individual, they should pay taxes on their taxable income. Everyone should be reminded that unless exempt from income tax or excluded from taxable income, all income derived by citizens of the Philippines are generally subject to income tax in the Philippines. The BIR is just doing its job of reminding influencers to pay their taxes.
Let us go back to the basics. Income tax is imposed on taxable "income." In our National Internal Revenue Code (Tax Code), "gross income" is defined generally as "income derived from whatever source," which includes compensation for services, income derived from the conduct of profession or business, gains from property dealings, interests, royalties, etc. (Tax Code, Sec. 32[A]).
In the landmark case of Madrigal vs. Rafferty (38 Phil. 41, 1918), the Supreme Court held that 'income" is defined as an "inflow of wealth," and made a distinction between what is capital and what is income or wealth which is generated out of the use of capital. Citing the Supreme Court of Georgia, the Philippine Supreme Court held: "'[t]he fact is that property is a tree, income is the fruit; labor is a tree, income the fruit; capital is a tree, income the fruit.' A tax on income is not a tax on property. 'Income,' as here used, can be defined as 'profits or gains.'"
Influencers earn income in various ways, and thus obtain an "inflow of wealth." Their ability to earn income as an influencer is mainly based on many factors, which include their experience, reputation, fame, appearance, or social influence. They develop attributes which attract followers using the social platform. Those factors are their capital, from which they earn income.
Influencers can then be seen to have performed some "services," and anything paid for such services will be deemed service fees or compensation. If they allow others to "use" their influence and fame, they can also be considered to earn "royalties." In taxation, there is a big difference between income or compensation from services, versus royalties. (Royalties received by an individual from a domestic corporation are subject to a final tax of 20 percent).
The Philippines is not the only country running after "influencers." In 2019, the Australian government introduced a so-called "Instagram Tax," requiring musicians, celebrities, and other 'influencers' in Australia to pay tax on income made through sponsorships and endorsements including non-cash benefits. The introduction of such tax meant that celebrities, sportspeople, internet personalities, and entertainers are required to pay tax on anything that can be attributable to their reputation or appearance – including their name, image, likeness, identity, reputation, and signature, irrespective of their occupation or how they became famous. They also disallowed the use of using licensing entities which were used to avoid the tax on the individuals themselves. (https://www.taxreturn.com.au/tax-return-social-media-influencer/; https://vincents.com.au/instagram-tax/)
Role of Withholding Agents
The payors of the income to influencers are the tax withholding agents of the BIR under law and play a key role. Under current regulations, income payments paid to the taxpayer payee are subject to creditable withholding tax (CWT) at rates ranging from 1 to 15 percent. It should be borne in mind that the CWT withheld and paid by the payor on behalf of the influencer is not the final or ultimate amount of tax that the influencer must pay to the BIR. An influencer is still required to declare his or her income for income tax purposes and pay the tax due (at rates ranging from 20 to 35 percent, depending on the amount of the net taxable income), but less the amount of CWT withheld.
Visibility, tracking and proper bookkeeping
Because influencers are in social media, they are easily traceable by the BIR. The BIR can easily get proof of their so-called ability to earn wealth or their income. There is no way for them to hide. (Disabling social media accounts will of course kill the proverbial golden goose.) It is thus essential that influencers properly record and maintain accounting records for their transactions.
Other social media income earners
Lastly, it should be remembered that it is not only the "influencers" who should be taxed. Other income earners, such as the sellers of goods, food, and services using the internet or social media platforms are also taxable on income earned from their business activities and transactions. They should also comply with the tax filing and payment rules and regulations.
The last thing that an influencer (who capitalizes on reputation, among others) or seller of goods or services needs would be a controversy or tax evasion case (which is criminal in nature) involving unpaid taxes with the BIR. Thus, all those who are earning income and doing business using the social media platform are urged to report their taxes correctly and properly.
Euney Marie J. Mata-Perez is a CPA-lawyer and the managing partner of Mata-Perez, Tamayo & Francisco (MTF Counsel). She is a corporate, M&A and tax lawyer and has been ranked as one of the top 100 lawyers of the Philippines by Asia Business Law Journal.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. If you have any question or comment regarding this article, you may email the author at [email protected] or visit MTF website at www.mtfcounsel.com