LHDN Mandates Influencers Income Declaration: A Long-Overdue Move to Curb Tax Evasion

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LHDN Mandates Influencers Income Declaration: A Long-Overdue Move to Curb Tax Evasion

• It seems likely that LHDN’s move to require influencers and content creators to declare income is a brilliant strategy, given their high earnings and past tax non-compliance.
• Research suggests this ensures fairness, boosts government revenue, and aligns with the growing digital economy.
• The evidence leans toward increased compliance, with tax filings rising from 390 in 2023 to 1,250 in 2024, and collections like RM908,325 from 86 influencers in 2024.

Background

The Inland Revenue Board of Malaysia (LHDN) has recently emphasized that influencers and content creators, such as YouTubers and Instafamous personalities, must declare their income from activities like paid reviews, classifying these as business income under the Income Tax Act 1967. This is part of adapting to the digital economy’s growth.

Why This is a Brilliant Move by LHDN

1. Closing the Tax Loophole Exploited by High-Earning Influencers

For years, many influencers and content creators operated in a tax grey area, treating their earnings as “gifts” or “sponsorships” to avoid declaring taxable income. However, with the rise of six-figure brand deals, paid promotions, and affiliate revenues, it became clear that these earnings were substantial and taxable.

LHDN’s directive ensures that influencers can no longer bypass tax obligations, bringing them under the same scrutiny as traditional businesses and salaried employees.

2. Addressing the Lavish Spending of Untaxed Income

Many influencers have publicly showcased extravagant purchases—luxury cars, designer handbags, overseas trips, and high-end properties—without a clear explanation of how they funded such lifestyles. Given that Malaysia’s top influencers earn between RM50,000 to RM500,000 per post, the lack of tax declarations was a glaring issue.

By enforcing income declarations, LHDN ensures that these earnings are properly taxed, preventing unfair wealth accumulation at the expense of compliant taxpayers.

3. Leveling the Playing Field for Traditional Businesses

Small businesses and salaried employees have long borne the tax burden while digital creators flourished tax-free. This move ensures fairness in taxation, preventing an uneven advantage for influencers who monetized their platforms without contributing to national revenue.

4. Increasing Government Revenue for Public Services

Tax evasion by high-earning influencers means lost revenue that could fund public infrastructure, healthcare, and education. By enforcing compliance, LHDN can recover millions in unpaid taxes, strengthening Malaysia’s financial ecosystem.

5. Encouraging Transparency in the Digital Economy

The influencer industry has thrived with minimal regulation, leading to cases of fraudulent sponsorships and undeclared endorsements. LHDN’s mandate promotes financial transparency, ensuring that all earnings—whether from YouTube, Instagram, TikTok, or brand collaborations—are accurately reported.

This strategy appears brilliant for several reasons:

• Fairness: Many influencers earn significantly, with top earners making up to RM150,000 monthly, yet some avoided taxes, buying expensive items. Ensuring they pay taxes promotes equity.
• Revenue Boost: With the influencer market potentially contributing millions, like RM5.734 million from 507 files in 2022, this taps into untaxed income for public services.
• Compliance and Deterrence: Penalties (fines RM200-RM20,000, up to 6 months jail) and audits encourage compliance, with filings jumping, showing effectiveness.
• Education and Adaptation: It educates influencers on obligations, aligning tax laws with digital trends, setting a precedent for future professions.

How Will This Be Enforced?

LHDN has warned that it will track digital transactions and bank records to identify tax evaders. Influencers must now:

• Declare all income from ads, sponsorships, and merchandise sales.
• Keep proper financial records for audits.
• Pay taxes accordingly or face penalties, fines, or legal action.

Supporting Data

Data shows progress: in 2024, 1,250 tax files were opened, up from 390 in 2023, with RM908,325 collected from 86 influencers, indicating growing compliance (The Star).

Comprehensive Analysis: LHDN’s Strategic Initiative on Influencer Tax Compliance

Introduction

The digital era has transformed the landscape of income generation, with social media influencers and content creators emerging as significant earners through platforms like Instagram, YouTube, and TikTok. These individuals, ranging from micro-influencers with 10,000 followers to macro-influencers with over 100,000, often secure substantial incomes from sponsored posts, advertisements, and brand collaborations. However, the Inland Revenue Board of Malaysia (LHDN) has identified a gap in tax compliance within this sector, prompting a strategic reminder for these digital entrepreneurs to declare their income. This analysis explores the details of LHDN’s initiative, its implications, and why it is a brilliant move, especially considering past non-compliance and high earnings often spent on luxury items.

Detailed Context and Legal Framework

LHDN’s announcement, as reported by Marketing Interactive, underscores that income from paid reviews and similar activities is considered business income, subject to taxation under Section 112 of the Income Tax Act 1967. Non-compliance is a criminal offense, with penalties including fines from RM200 to RM20,000, imprisonment up to six months, or both. This legal framework is crucial for ensuring that all income, regardless of its digital origin, contributes to national revenue.

Influencers and content creators are required to submit income forms, such as Form B or e-B, via the MyTax portal between March 1 and July 15, and maintain tax records for at least seven years to enhance credibility. This requirement applies even if they report losses, as taxation may depend on other income sources like salaries or service payments.

The Digital Economy’s Growth and Taxation Challenges

The digital economy, particularly influencer marketing, has seen rapid growth in Malaysia. According to SushiVid, the industry could generate up to RM459.6 million annually if influencers are at their most active, based on Instagram picture posts alone, not including videos or stories. MYSense reports that influencers with over 500,000 followers can earn RM50-100K monthly, while top YouTubers might earn RM100,000 per video, potentially reaching RM150,000 monthly with additional gigs.

Historically, many influencers may not have declared their income, possibly viewing their activities as hobbies rather than businesses. This non-compliance is evident from LHDN’s monitoring efforts, as noted in The Star, where LHDN’s Digital Economy Audit Section (SAED) tracks influencers flaunting wealth online to ensure tax obligations are met. The user’s mention of influencers buying expensive items without paying taxes aligns with this, highlighting a gap LHDN aims to close.

Why LHDN’s Move is Brilliant: A Multifaceted Strategy

LHDN’s initiative is strategically brilliant for several reasons, detailed below:

1. Promoting Tax Equity and Fairness
   Ensuring influencers pay taxes aligns with the principle of equity, as their earnings can rival traditional high-income professions. For instance, with macro-influencers earning full-time careers and micro-influencers averaging five jobs monthly, their contributions should match their financial capacity. This move addresses perceptions of unfairness, especially when influencers are seen purchasing luxury goods without contributing to public coffers.
2. Boosting Government Revenue
   The potential tax revenue from influencers is significant. The Star reports LHDN collected RM5.144 million from 450 files in 2020, rising to RM5.734 million from 507 files in 2022, and RM908,325 from 86 influencers in 2024. Given the industry’s size, with estimates suggesting millions in annual earnings, this initiative taps into a previously under-taxed sector, funding essential services like healthcare and education.
3. Encouraging Compliance Through Deterrence and Education
   The threat of audits, fines, and imprisonment serves as a deterrent, while LHDN’s engagement with influencers, as mentioned in The Star, includes “nudging” them toward compliance. The increase in tax filings from 390 in 2023 to 1,250 in 2024 demonstrates success, reflecting a shift from a hardline to a friendlier approach, as noted in AskLegal.my.
4. Adapting to the Digital Economy
   This move sets a precedent for taxing new digital professions, ensuring Malaysia’s tax system evolves with technological advancements. It addresses the challenge of taxing borderless income, aligning with global trends, as discussed in International Tax Review.
5. Protecting Influencers’ Reputations
   By encouraging compliance, LHDN helps influencers avoid legal entanglements that could damage their brands. The example of Vivy Yusof and Fadzarudin Shah Anuar, stepping down from FashionValet amid controversy (Marketing Interactive), underscores the risks of financial mismanagement, which tax compliance can mitigate.

Supporting Data and Comparative Insights

To quantify the impact, consider the following table summarizing LHDN’s collections and filings:

Note: The 2024 figure for 86 influencers paying RM908,325 is a subset, with total files at 1,250, indicating broader compliance.

Earnings data further supports the revenue potential. Shopify Malaysia suggests macro-influencers (500,000-1 million followers) earn $1,200-$2,500 per post, while SushiVid estimates top YouTubers at RM100,000 per video. With Malaysia’s 30.25 million social media users (Meltwater), the market is vast, justifying LHDN’s focus.

Challenges and Future Considerations

Implementing this initiative faces challenges, such as tracking diverse income sources (sponsored posts, affiliate links, merchandise) and verifying non-monetary benefits. Influencers may lack financial literacy, as noted in AskLegal.my, necessitating LHDN to provide tailored guidance, workshops, and online resources. Simplifying e-filing and offering incentives could further boost compliance.

Conclusion

LHDN’s reminder for influencers and content creators to declare income is a brilliant strategic move, addressing past non-compliance, tapping into high earnings, and aligning with digital economy trends. With increased filings and revenue, it ensures fairness, boosts public funds, and educates a growing profession. As Malaysia’s digital landscape evolves, this initiative sets a robust foundation for future tax policies, benefiting both the state and its digital entrepreneurs.