Taxing the digital economy : are social media content creators embarking on trade?

Abstract

Background: Social media boosts as one of the fastest growing internet applications, used by both individuals and companies. The growth of the digital economy as well as the recent Covid-19 pandemic lockdown restrictions, contribute to the increased use of social media. Presently, normal social media users can become internet celebrities, and may generate substantial income from their social media activities. The absence of effective tax laws and regulations harmonising with immerging social media income streams, has led to tax evasion among social media influencers on a global scale. Like other countries, South Africa has implemented various mechanism to improve tax compliance and collection, however it is yet to be determined whether these mechanisms make sufficient provision to specifically tax income from social media. Main purpose of the study: The main purposes of this research was to analyse whether South Africa’s tax laws and regulations regard social media activities as a trade and what tax deductions are available for the expenses relates to that trade. A cross-sectional study has been provided of individuals’ perspectives relating to whether they regard or would hypothetically regard their social media activities as a trade, as well as the expenses they would incur in relation to the trade. Method: A combination of qualitative and quantitative research methodologies where applied throughout this study in order to achieve the main purposes. Doctrinal research methods were used in order to determine and synthesise the South Africa tax laws and regulations regarding the concept of trade and specific deductions applicable to social media content creators. Additionally, descriptive, and explorative research methods were applied in analysing and interpreting the primary data obtained from 206 respondents who responded to the online questionnaire. Results: Doctrinal research indicates that certain requirements of tax legislation need to be met in order for social media activities to constitutes a trade and related expenses to be tax deductible. Specifically, these tax deductions include pre-trade expenses, home office expenses and assessed losses. Furthermore, the study expanded on the actual expenses and losses expected to be incurred by content creators. The data obtained from the survey revealed the respondents’ perceptions regarding content creation as a trade, as well as the expenses that they would expect to incur to deduct against their taxable income. Conclusion: A content creator’s level of risk-taking and profit-making intention will determine whether their social media activities constitute a trade. From the interpretations of SARS and the courts, it is reasonable to infer that content creation will constitute a trade. Content creators might incur a various array of expenses in the furtherance of their trade. The tax deductibility of these expenses depends on the type and when these expenses are incurred. This includes expenses and losses relating to the periods prior, in preparation and during their content creation activities.