What the new taxation on social media influencers means to public relations agencies

Social media influencers are key stakeholders in the broad scheme of marketing and communications. Not only restricted to blogs, they also wield strong influence through the likes of Instagram, Facebook, Twitter, YouTube, and other social media platforms.

The current practice in the industry for influencer engagement is to pitch and interest them by providing products or services for review in exchange for an exposure on their social media and/or website. Often, a reparation of sorts – cash in kind, that recompenses their time investment and influence is disbursed from brand owners, public relations (PR) practitioners, and marketers to engage them.

Now, the common practice of influencer engagement will likely see a change. On 15 March 2016, several news media reported that some members of Singapore's blogging community, which also included the social media influencers, received a letter from the Inland Revenue Authority of Singapore (IRAS) to declare all non-monetary benefits such as products or services received as part of their annual Income Tax Return. Gifts and sponsorships such as meals, stays, and vacations are also included.

Shake up the influencer/blogger community
Influencers will likely take into serious consideration the amount they are required to declare as income before readily accepting an invitation. An example would be an overseas media visit or familiarisation stay which could easily be valued at tens of thousands of dollars for a couple or a small family. Although it may be fully sponsored by a brand, the possible tax on income an influencer has to bear will be high on his or her consideration.

The new income tax will likely 'weed out' influencers who are in for short-term gains such as dining, parties, or freebies. They will now have to be ready and willing to fork out money to fund these activities and sponsored products, and view their blogging and influencing work seriously as a business, instead of merely a casual hobby and supplement to income.

While IRAS has meted out the declaration guidelines, there exists many grey areas for contention. For many influencers, complications are involved in the tax declaration.

Non-monetary gains such as sponsored products pose a potential tax declaration issue in certain cases. For example, some marketing or PR firms may send new products to influencers without prior notice or consent. In these scenarios, it may be perceived to be unfair to pay tax for the receipt of gifts.

Another problem surfaces when the value of the product is not shared by marketing or PR firms. Without some form of valuation, influencers will face difficulties declaring their tax amount accurately, especially in cases when they have to declare the market value of a media tasting not only for themselves, but also the service or product extended to friends or family.

PR agencies can expect influencers to review each assignment with more deliberation. Longstanding and reputable bloggers will likely retain their stand in producing top-notch pieces.

On a positive note, it is considered by some influencers that the Singapore government finally recognises blogging, YouTubing, Facebooking, and all as a "legitimised profession". This perhaps spells a confidence boost in those who look beyond the tax issues and the shake-up of the community.

Raise the bar of public relations agencies
PR agencies will face greater difficulties in pitching to the influencers as the latter may consider the impact of taxation, especially in the case of sponsorships-in-kind. The taxation requirement on influencers will have a ripple effect on marketing firms as well. 

To rise to the challenge, marketing and PR firms will have to improve on the quality of pitches. PR agencies should consider each influencer's unique strength and implement a more varied yet collaborative approach to share content and engage with their audience.

Other than working on an interesting pitch to engage the influencers, agencies may also consider the issuance of a Letter of Engagement.

With each influencer engagement, an engagement agreement that details the time investment required by the influencer and financial gains including the gifts-in-kind will help both the PR agencies and influencers in terms of the tax declaration.

It is worth noting that the tax law is not new. In the United States and Canada, influencers have already been requested to declare their incomes made through personal blogs and social media.

As such, the local influencer scene will eventually adapt to the new practice and PR agencies can take full advantage of the change by choosing to engage in the right steps.