- Pakistani banks are now charging new taxes on Netflix subscription fees due to recent Sindh Revenue Board (SRB) directives, including a 3 percent Sales Tax on IT Services and additional taxes for both tax filers and non-filers.
- The Sindh Sales Tax Special Procedure Rules, 2023, have designated certain banks as collecting agents for these taxes, which include a 3 percent tax on IT and advertisement services provided by non-resident companies like Netflix.
- The new Finance Bill 2024 introduces further taxes on tech companies operating in Pakistan, with Netflix recently receiving a notice from the Federal Board of Revenue (FBR) for over Rs. 200 million in income tax, reflecting increased scrutiny on offshore digital service providers.
Pakistani banks are now levying new taxes on Netflix subscription fees due to recent directives from the Sindh Revenue Board (SRB).
The SRB, which last year imposed a 13 percent provincial sales tax on advertisement services, has now expanded its tax scope to include the streaming service.
Reports from various local media indicate that Netflix users in Pakistan must now pay a 3 percent Sales Tax on IT Services when using debit or credit cards.
Additionally, subscribers face a 5 percent Advance Tax on International Transactions (for tax filers) and a 4 percent Card Transaction Charge, which includes Federal Excise Duty. For non-filers, the advance tax on international transactions increases to 10 percent.
Banks have been appointed as withholding agents for the SRB to collect these taxes. This follows the implementation of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023, which designates 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.
Furthermore, the new Finance Bill 2024 introduces a tax on tech companies earning income in Pakistan through digital means. Consequently, Netflix, due to its business operations in Pakistan, is now required to pay taxes for charging customers in the region.
Recently, 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 criticized for using Double Taxation Agreements (DTA) to avoid taxes. Section 6 was introduced by the government to ensure that non-resident entities receiving income from Pakistan pay the necessary taxes.
These tax changes are expected to have a direct impact on consumers, as the additional costs are likely to be transferred to Netflix subscribers.
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