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Monday, July 15, 2024

New Tax Impositions on Netflix Subscriptions in Pakistan: What You Need to Know

Local media reports indicate that Netflix users in Pakistan are now subject to a 3 percent Sales Tax on IT Services when paying with debit or credit cards.

Pakistani banks have started implementing new taxes on Netflix subscription fees following recent mandates by the Sindh Revenue Board (SRB). Last year, the SRB imposed a 13 percent provincial sales tax on advertisement services, and it has now extended this tax to include the popular streaming service.

Local media reports indicate that Netflix users in Pakistan are now subject to a 3 percent Sales Tax on IT Services when paying with debit or credit cards. Additionally, subscribers face a 5 percent Advance Tax on International Transactions (for tax filers), along with a 4 percent Card Transaction Charge, which includes a Federal Excise Duty.

Read more: Netflix reveals its all-time most-watched series and movies list

For non-filers, the advance tax on international transactions increases to 10 percent. Banks have been designated as withholding agents for the SRB to collect these taxes. This follows the introduction of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023, which appoints certain banks and entities authorized by the State Bank of Pakistan as collecting agents for sales tax on IT and advertisement services.

According to these rules, a 3 percent tax is imposed on services provided by software or IT-based system development consultants, including cloud-based content streaming services like Netflix, for payments made through a collection agent to any non-resident service provider.

In a related development, the new Finance Bill 2024 includes a tax on tech companies earning income in Pakistan through digital means. Consequently, Netflix, due to its business presence in Pakistan, is now required to pay taxes for charging customers in the region.

Read more: FBR Issues Rs.200 Million Tax Notice to Netflix Over Earnings in Pakistan

Last month, the Federal Board of Revenue (FBR) issued a notice to Netflix for the recovery of over Rs. 200 million in income tax under section 6 of the Income Tax Ordinance, 2001. Offshore digital service providers, including Netflix, have been accused of using Double Taxation Agreements (DTA) to evade taxes. The government introduced section 6 to ensure non-resident entities receiving Pakistan-source income pay the required taxes.

These tax changes are expected to directly impact consumers, as the additional costs will likely be passed on to Netflix subscribers.