Complying with taxes as a social media influencer
Being an influencer is a full-time job. And as your platform and influence grow, you are required to stay compliant with the law when it comes to taxes.
Did you know that when your favourite social media influencer does a random mention or post about a cool (according to them) place, product or service, they are smiling all the way to the bank?
For the seemingly random posts, the influencer is paid depending on their reach and popularity which is captured in a rate card that states what they charge for their services for each specific social media platform.
Pushing hashtags, creating content, and generating engagement is now big business in Kenya that is attracting the attention of the taxman. As a Kenyan social media influencer focused on securing the bag you should also aim to be tax compliant.
According to Wangui Muchiri, the Director, Tax Planning and Compliance at Black Rose Consultancy, the best advice to an influencer is to hire a consultant to help solve the tax puzzle.
At Black Rose Consultancy, for Kshs. 2,500 a freelancer can get their annual taxes filed correctly with consultation on tax advice billed at Kshs. 3,500.
The term influencer refers to bloggers, vloggers, celebrities or social media personalities with a sizable online following who partner with brands through the use of their influence to trigger purchase or awareness of products or services.
Influencers who directly engage in sales of a product or service are liable to pay digital service tax since according to Kenya Revenue Authority (KRA) “their income is derived from or accrued from the provision of services through a digital marketplace or by providing digital advertising services in Kenya.”
The VAT Act defines a digital marketplace as “a platform that enables the direct interaction between buyers and sellers of goods and services through electronic means.”
Digital service tax (DST) was added as a new tax for the financial year 2020/21.
DST is imposed at a rate of 1.5% of the Gross Transaction Value (GTV). Under the Regulations, GTV is defined as the consideration received in respect of the service provided in the case of a digital service provider; and the commission or fee paid for the use of the platform in the case of a digital marketplace provider.
If an influencer charges clients to advertise their products on their social media page, they will be liable to pay DST. If an influencer owns a website where individuals and companies advertise their products, then they will also pay DST.
See how Edgar Obare would spice the tea he served on Instagram with banner posts of different businesses or services? With DST in place, KRA is watching the stories and also calculating the tax accrued.
However, according to Amrit Labhuram, lawyer and public policy expert, there will be a need to clarify the law further to reduce ambiguity when DST is pegged on the value of the sales given it is not every time an influencer can push a product or service and know if their post has triggered an actual purchase.
DST returns and payment are due on or before the 20th day following the end of the month the digital service was offered.
The introduction of DST is not unique to Kenya. In the last two years, a number of European and Asian countries have introduced DST into their taxation regime.
In addition to the DST, an influencer can also be liable to pay withholding tax which is tax withheld at the source.
Say an influencer is engaged by a digital or public relations agency to offer consultancy services. The influencer will bill them, but the agency will withhold a certain percentage of the fee to be paid and remitted to KRA on behalf of the recipient.
The percentage of withholding tax deducted varies between different incomes and is dependent on whether you are a resident or non- resident. Withholding tax at 5 per cent generally applies to management and professional fees of over Kshs. 24,000 per transaction.
The agency then uses a KRA pin to generate a withholding tax certificate that it shares with the influencer who uses it to offset their tax liability when filing their annual tax returns.
Influencers can also pay tax on income derived from business, employment, rent, dividends, interests, pensions among others. These are specified sources of income which are taxed separately at a general tax rate of 30%.
It is worth noting that Digital Service Tax and Withholding tax are both advance taxes, not final taxes.
As an influencer, once you have computed your tax payable for a financial year, which is done by adding up all your various tax liabilities over the year and factoring in your various tax deductibles, you then subtract the withholding tax, digital service tax and any other advance tax, and only pay the difference to the KRA as your tax balance.
For example, if your income is a million shillings, your tax payable is Kshs. 250,000 and if your advance taxes total to Kshs. 200,000, then you only owe KRA Kshs.50,000.
Confused? The math is not ‘mathing’. Feels like ‘mazematics’? Worry not. There are people who make a living from solving the tax puzzle and just like people hire you to offer influencing services, or you pay a doctor when you are sick, you too should hire a tax consultant to ensure you are compliant.
So, if you are a social media influencer who is thriving on the social media streets, be very careful before filing a nil return because the taxman is watching.