After requiring banks to deduct 13 percent of provincial sales tax on advertisement services last year, the Sindh Revenue Board (SRB) has now imposed additional taxes on Netflix. Banks are now charging new taxes on the video-on-demand streaming service in Pakistan.
Netflix users are now subjected to a 3 percent Sales Tax on IT Services when paying subscription fees with debit or credit cards. Additionally, there is a 5 percent Advance Tax on International Transactions for filers, and Card Transaction Charges have been set at 4 percent, plus a Federal Excise Duty.
The advance tax on international transactions for non-filers is different. The advance tax for non-ATL individuals is set at 10 percent. Banks are now acting as withholding agents on behalf of SRB to collect the additional taxes on Netflix. Notably, SRB first imposed the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023 (the Rules) (see notification No. 3-4/46/2023, dated 27 September 2023) and specified certain banks and other entities, licensed or authorized by the State Bank of Pakistan, as “collecting agents” for sales tax on IT and advertisement services.
As a result, the board imposed a tax rate of 3 percent on services provided by software or IT-based system development consultants, including cloud-based content streaming services like Netflix, for which payment is made through a collection agent using any means to transfer payments to any service provider not residing in Pakistan.
The pricing for Netflix in Pakistan, excluding taxes, is as follows: Mobile: Rs. 250/month, Basic: Rs. 450/month, Standard: Rs. 800/month, and Premium: Rs. 1,100/month. Netflix states on its website that depending on where the user lives, they may be charged taxes in addition to their subscription price. Last week, ProPakistani reported that the new Finance Bill 2024 now includes a tax on tech companies that earn income in Pakistan through digital means or presence. Because of its business presence in Pakistan, Netflix is now liable to pay taxes for charging customers in the region. The impact of these taxes will be covered by making consumers pay.
Notably, under section 6 of the Income Tax Ordinance, 2001, the Federal Board of Revenue (FBR) sent a notice to Netflix last month seeking the recovery of more than Rs. 200 million in income tax. The use of Double Taxation Agreements (DTAs) by corporations offering digital services abroad to avoid paying taxes has also come to light.
Double taxation avoidance treaties (DTAs) are agreements between two or more nations to reduce or eliminate the possibility of territorial double taxes on the same income. Section 6 of Pakistan’s Income Tax Ordinance 2001 mandates that all non-residents who earn royalties or fees for technical services or offshore digital services from Pakistan must pay taxes.
The SRB has done a lot to ensure that Pakistani businesses with a digital presence, like Netflix, are paying their taxes. To raise more money from digital services, the government has proposed several taxes on subscription fees and mandated that banks function as withholding agents. These regulations will ensure that internet service companies pay their fair share to the economy, but they might drive up customer prices.
