What’s a king to a god? What’s a god to a nonbeliever? What’s tax to an influencer? Well, something they’re going to have to acquaint themselves with soon. According to the latest Central Board of Direct Taxes (CBDT) guidelines, influencers are going to have to start paying tax on the freebies they receive from brands. To be more specific, influencers will now have a 10 per cent tax deducted at source (TDS) if they retain the product given to them for sales promotion. However, if they return the product to the company after the job is done, TDS will not be applied to the product. While this seems like something not of our concern, it will actually have great implications on online marketing.
No doubt you have a list of your favourite influencers who you actively keep up with on social media. From their life updates to their preferences, there is an endless stream of content heading your way constantly. Amidst the reels about their latest trip or their comedic scripts, you can find branded content making an appearance. Sometimes obviously through direct promotions and other times through subtle plug-ins, you are being fed a variety of branded content. Most people don’t mind it because as much as you love looking at what your favourite influencer is up to, you also like having insight into their likes and dislikes.
Obviously, the term ‘infleuncer’ is derived from the influence that these individuals have over their followers. Most people follow influencers for the aspirational value. They are role models, living lives that almost feel attainable. If you embody the same aesthetic, wear the same clothes, and buy the same gadgets, you could live their life. It’s a subliminal messaging especially evident in the content that tells you that they are just like you, as they rock their latest designer clothes.
Most brands opt for influencer marketing over celebrity endorsement for this very reason. Bringing a direct flow of income to these individuals, influencing is today considered a career path. Influencer-brand collaborations work in two ways, the barter system and the payment system. The barter system involves the brand sending free products to the influencer for a feature on their page in return and the payment system, as its name denotes involves the influencer promoting the brand on their page for a sum of money. While the second system would lead to the usual income tax that any of us are subject to, the freebie system has, for the longest time, fallen under the radar. The government’s recent decision would rectify this by having influencers pay for their actual overall income.
When it comes to brand endorsements by celebrities there is much scrutiny involved. If the celebrity is to promote something, they make sure to protect themselves from backlash by only pushing products and services that they actually swear by. This is because brand ambassadors and the brand itself are synonymous. Meaning that if the product is not of good quality, it is a reflection on the celebrity as well. This has not been the case for influencer-brand collaborations. Perhaps, it is due to the lower pricing charged by influencers and the possibility of barter collaborations, that brands involve themselves with numerous influencers. This results in, on the brand’s end, high visibility without having to associate with a fixed individual and on the influencer’s end, insulation from any brand disasters being associated with them.
Till now influencers have freely taken up brand collaborations because of the lack of responsibility associated with it. Brands approach them to promote products/services and with little to no research or trial they take up the opportunity. For the longest time, there was no distinction between branded and no branded content. Followers were unaware of when the content was pushing a product and when it was a genuine recommendation. But, the mandate to have “paid promotion” added to branded content fixed the issue. Now, the introduction of this new law will have two effects, one being the influencer having to pay tax on their actual income and two being a reactive effect which will have influencers think twice about the products that they promote, especially through the barter system. An influencer who has to pay for a product that they do not trust enough to use will be less likely to promote it.
However, this doesn’t mean that every free product would be taxed. In the case of non-returnable items like food, makeup and so on, the influences can retain the product without having to pay tax on it. To a certain extent, this new taxation policy excludes a few communities of influencers like food bloggers and makeup influencers. In the case of the products that they do choose to keep, tax will only be levied if its value exceeds twenty thousand rupees. This will no doubt have an effect on how brands go about promotions, but the totality of its cascading effect is yet to be seen.
