Taxing Content

January 27, 2022


With the rise of social media, the type of content people consume has evolved. Entertainment no longer means movies shown in a cinema or television series starring actors paid millions. Today, anyone can create and distribute content and make money doing it.

Over the past decade, social media has proven to create astounding success stories. YouTube star PewDiePie (real name Felix Kjellberg) is one example of achieving fame and fortune. With 110 million subscribers, PewDiePie has the most on YouTube. He started making videos of himself playing video games in 2010, and in 2011 left his industrial engineering studies to work on his channel full time. His net worth is estimated at $40 million.

Egypt has some breakout social media stars of its own. Travel blogger Sherif Fayed has 1.4 million followers on Instagram, while Samar Samir, creator of “Asrar Al Matbakh Ma’ Samar (Kitchen Secrets With Samar),” has 2.1 million subscribers on YouTube.

In Egypt, content creation can be a way to make some extra cash or even become a primary source of income. However, an announcement by the Egyptian Tax Authority (ETA) in September revealed a plan to tax YouTubers, bloggers, and other content producers. That might rock the boat for some creators, but international experience with similar rules and regulations has exposed loopholes, such as using third-party entities or websites to diversify income channels.

YouTube economy

Egypt’s YouTube consumption (average amount of time spent on the platform) has risen significantly during the past decade and is seen by some as an indicator of growing content production. In August 2018, Laila El Naggar started her cooking channel after an upsetting medical diagnosis. Preparing traditional Egyptian dishes such as fesikh (pickled fish) and tripe, she found a market on YouTube that had not been tapped. Her channel currently has 800 videos and more than 45 million total views. El Naggar says she and other women who create cooking content on YouTube make EGP 20,000-100,000 ($1,270-$6,350) a month from a combination of ads and sponsorship deals.

Ten years ago, Facebook dominated Egyptian social media with a 95% market share, according to web traffic analysis site StatCounter, but has since lost significant ground. In April, YouTube surpassed Facebook with almost 51% of market share compared to Facebook’s 41% and Twitter at 6.25%. However, Twitter has had its moments, reaching its high this year of 35% in July, while Facebook was at 53% and YouTube just over 11%.

However, viewer count (the number of people who watch a video for at least 30 seconds) does not always reflect profit. According to multiple guides such as Shopify and wikiHow, the best way to make money online is by branding and content where businesses pay to promote products or services. That enables a creator with 100,000 loyal subscribers who buy the sponsored products to make more than another creator with 1,000,000 casual subscribers. While Instagram (owned by Meta, formerly known as Facebook) and YouTube (owned by Google) mark such posts and videos as “paid partnerships,” there is no way for their parent companies to find out how much any company pays directly to creators to plug their products.

Such sponsorship deals might fall under freelance agreements, another area which Egypt sometimes struggles to tax because it often falls within the informal economy. Informal freelance work allows businesses to pay freelancers a little more money instead of going through contractual arrangements that would ultimately cost the company more administrative fees and taxes.

International YouTubers use similar tactics to get around inconsistent monetization rules. In 2018, YouTube’s parent company Google introduced rules that give creators “the ability to turn on ads for [their] videos if they meet [Google’s] advertiser-friendly content guidelines.” However, if the content violates the guidelines, Google would turn off ads. Among Google’s “main topics that are not advertiser-friendly” are inappropriate language, violence, adult content, shocking content, and harmful or dangerous acts.

Essentially, “instead of ads being randomly placed on videos, YouTube and advertisers would work together to ensure that top ads got placed on specific types of content or creators,” wrote technology writer Ross Miller in Polygon, an online publication.

For content that doesn’t meet Youtube’s advertiser-friendly standards, some creators have turned to Patreon, which bills itself as an “American membership platform that provides business tools for content creators to run a subscription service.” The service offers several business models that allow creators to accept subscription fees for a little bit of extra, members-only content. News YouTuber Philip Defranco credits Patreon and his sponsorships for “paying the bills” every month, explaining it allows him to continue covering “difficult stories” that might include terrorism, sexual assault or other topics that get videos flagged as “not advertiser friendly.”

However, Patreon only operates in the U.S., Canada, Australia, the U.K., and Germany, and the website is blocked in Egypt.

Laying down the proposed law

In September, the Egyptian Tax Authority (ETA) announced it would start taxing “bloggers and YouTubers” based on their income and earnings. “The Ministry of Finance is closely following the Tax Authority to make every effort to achieve tax justice by listing the tax community more accurately, especially the transactions that take place through electronic platforms,” said authority head Reda Abdelkader.

The authority’s statement urged content creators to head to their nearest tax office to set up files to record their income. However, they gave no additional information or timeline.

Taxing content creators is in line with Egypt’s efforts to formalize the informal sector. In 2019, Ahmed Kamali, deputy minister of planning, follow-up and administrative reform, estimated that the informal economy accounted for 40% of GDP. At a May AmCham event, Walid Darwish, deputy minister for environmental affairs in the Ministry of Trade & Industry, said “formalizing the informal sector” was a focus of the ministry.

Content creators will be taxed on their annual income, based on the same brackets used for company-based salaries: EGP 15,000 or less, exempt; EGP 15,000 to EGP 30,000, 2.5%; EGP 30,000 to EGP 40,000, 10%; EGP 45,000 EGP 60,000, 15%; EGP 60,000 EGP 200,000, 20%; EGP 200,000- EGP 400,000, 22.5%; and EGP 400,000 or more, 25%.

A value-added tax (VAT) will apply to the highest income bracket, but the Tax Authority did not clarify how it will collect that tax from content creators. Ashraf El-Araby, former deputy to the minister of finance, told local media outlet Mada Masr he had some concerns regarding enforcement of a VAT. He explained that a VAT is passed on to consumers and collected by retailers or manufacturers, so it is unclear how it applies to digital content.

Tax and data collection

According to the Tax Authority statement, the government will ask Meta and Google to supply AdSense data about Egyptian content creators’ earnings. AdSense is the program “through which website publishers serve text, images, video, or interactive media advertisements that are targeted to the site content and audience.” Thus, the request for data does not cover income from sponsorship deals.

Under Chapter 3 of the U.S. Internal Revenue Code, Google has a responsibility “to collect tax info, withhold taxes, and report” YouTube earnings from viewers in the U.S. to the Internal Revenue Service (IRS), according to Google’s support page. Money from YouTube ads is collected per view, according to Influencer Marketing Hub, a Danish media company supporting the social media and influencer marketing industry. The company estimates that the average YouTuber can make $18 for every 1,000 ad views or $3-5 for every 1,000 video views. The distinction between ad and video views is made because if a viewer watches a video but skips or blocks the ad, the creator makes no money from that viewer. According to Google Support, even YouTubers who do not file U.S. taxes might have up to 30% of their earnings withheld depending on the number of American viewers who watch the ads on their videos.

While Google and Meta, both based in California, are obligated to comply with U.S. law, it is unclear whether the companies would agree to international requests. Egypt’s digital content tax plans are a few years behind the E.U., which in 2018 proposed new rules “to ensure that digital business activities are taxed in a fair and growth-friendly way,” according to the European Commission website. “Today’s international corporate tax rules are not fit for the realities of the modern global economy.” The U.S. asked the E.U. to postpone its deployment of the tax as it “could derail work on a planned global minimum tax rate,” and the two parties are still negotiating the issue.

Complying with international tax reporting rules would entail an adjustment of U.S. law to allow companies like Google to disclose information to foreign governments. U.S. law currently does not force U.S. companies to disclose their financials to other governments. Even if both companies agree, they will still have to navigate reciprocity tax treaties to ensure all creators only pay taxes once. Egypt does have a reciprocity tax treaty with the U.S. But it is unclear whether Egyptian YouTubers would have to pay the Tax Authority in addition to having some earnings from U.S. viewership withheld for the IRS.

Google’s terms of service state that it “carefully reviews each request” from government agencies from around the world to disclose user information to “make sure it satisfies applicable laws.” Google adds that if a request asks for too much information, it narrows it and, in some cases, “objects to producing any information.”

As Egypt works to expand its revenue base and formalize the economy, taxing bloggers and YouTubers may well be an appropriate step, but the details are still thin. Additionally, Google and Meta aren’t the whole story. While creators might make some money from these platforms, a lot of the income comes from third parties. A thorough understanding of the industry will be essential because not all business deals are carried out on social media; many earnings are hidden. Making the most of tax collection from social media will mean regulating Google and Meta and formalizing and regulating sponsorship deals.