The new tax regulation on influencer gifts and earnings is expected to formalise the creator economy and take it mainstream
This month on, social media influencers and content creators will be paying 10% tax deducted at source (TDS) for gifts or services exceeding `20,000 in value annually. This is as per the Finance Act 2022 which introduced a new Section 194R in the Income Tax Act, which also stipulates that if the TDS is not paid by the recipient, then a penalty may be imposed. Given that many brands employ barter collaborations with influencers, exchange gifts or products for content that feature them, it will be interesting to see how the new tax regulations will impact both—content creators and brands.
Paying the price
It is still unclear if the tax should be borne by the brand or the creator, observes Ankit Agarwal, CEO & founder, Do Your Thng, an influencer marketing firm. “The new tax is more likely to affect nano influencers (who have 1,000-10,000 followers) and micro influencers (10,000-50,000 followers). Consider travel influencers who are compensated with hotel stays or plane tickets in exchange for honest reviews and opinions. The cumulative tax on all products or services they receive is not a small sum, especially for budding content creators,” says Agarwal, noting that small-time influencers may see a short-term downswing.
The tax is seen by most as a step towards bringing influencers and content creators into the mainstream, and acknowledging their work as legitimate business. According to a report by GroupM’s influencer marketing platform INCA, the influencer marketing industry stood at `900 crore in 2021. Vikram Kari, product head at INCA, says despite the initial apprehension among brands and influencers, the new tax may bring more formalisation to the business. “It has become a regular part of PR practice, especially for new brands and startups, to send out products to influencers and celebrities, with the ‘hope’ that he/she will post a video featuring or reviewing them. This approach will have to change, since there will have to be a clear tax trail in order to maintain compliance,” he says. Brands will also need to factor in the tax in their ROI calculation.
Small firms, with relatively smaller marketing budgets, are expected to take a bigger hit as they rely on barter deals. However, the new tax is likely to bring greater accountability to the sector, compelling brands and content creators to work out a more formal remuneration structure/ agreement. “Influencer collaborations will now become more filtered in terms of which brands the influencers want to partner with and talk about on their pages,” says Ramya Ramachandran, founder and CEO of Whoppl, an influencer marketing agency. She expects the new rules to usher in a more strategic approach to collaborations between brands and content creators.
The tax will not apply to products or samples that are sent on a returnable basis. “A lot of brand collaborations, especially in fashion, lifestyle, and electronics, exchange big-ticket items on a returnable basis. So the impact here will be minimal,” explains Sachin Bhatia, CEO, Good Creator Co., which is the influencer marketing platform for the Good Glamm Group that houses platforms like MissMalini and Vidooly.
INCA’s Kari says the law does not clearly say how returned goods will be tracked. It may be easy to track high-value products like electronics or cars but the trail may fade away for low-value items like FMCG products.
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