Influencer tax on barter deals could hurt smaller creators

The government’s new tax for social media influencers, which came into effect this month, is likely to impact smaller influencers, lead to renegotiation of some deals, and could lead brands to become more selective in which influencers they work with, industry experts and stakeholders said.

Under the new rule, social media influencers will have to pay 10% tax deducted at source (TDS) on freebies or any other form of payment made in kind, if the value of the product is above Rs 20,000. 

“For micro and nano influencers this is a big deal. A lot of creators get their remuneration in the form of products,” said Gaurav Jain, a former social media influencer, who now runs an influencer marketing company Creators Gram. Micro and nano influencers have fewer followers — often in the thousands — and earn a lot by way of freebies.

“For influencers, this means they’ll be paying tax for (brand) collaborations where they received no money,” said Ankit Agarwal, chief executive and founder of Do Your Thng, an influencer marketing firm. He added that it will also change the rules of the game for how brands approach partnerships with creators.

Jain noted that smaller brands, which sell primarily through social media and don’t have storefronts etc., mostly rely on collaborations with influencers to promote their products. He said that such firms will have to rethink their promotional efforts now. 

Similarly, mid-sized brands often strike deals with creators with large followings where they send products worth a fixed amount every month, in return for posts through their social media handles. Such deals are easier for these brands, since they cannot afford the creators’ quotes otherwise. These too may stop, according to Jain.

“We were giving gift vouchers to nano influencers. Now we will have to pay 10% extra. The cost will go up a little for us in certain categories of influencers,” said Sanjay Vasudeva, founder and CEO, BuzzOne Influencer Marketing.

It’s not all bad news for the industry though. Vasudeva noted that the tax could bring small creators, who often don’t see their work online as a job, into the taxation ambit. The size of the influencer marketing industry in India was estimated at Rs 900 crore, according to GroupM INCA’s influencer marketing report, published in September last year. The market is expected to grow to Rs 2500 crore by 2025. 

According to Vasudeva, influencers are given free products in around 20% of campaigns. Which means that the tax could end up helping formalize the industry to an extent.