Last year, the Sindh Revenue Board (SRB) mandated banks to deduct a 13 percent provincial sales tax on advertisement services. Now, SRB has imposed additional taxes on Netflix, further complicating the financial landscape for the video-on-demand streaming service in Pakistan.
Netflix users are now subject 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 are set at 4 percent, plus a Federal Excise Duty. For non-ATL individuals, the advance tax on international transactions is 10 percent.
Banks are acting as withholding agents on behalf of SRB to collect these additional taxes on Netflix. This move follows the imposition of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023, which 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, a 3 percent tax rate was imposed 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.
Netflix has stated on its website that depending on the user’s location, additional taxes may be charged on top of the subscription price. Recently, The National Diplomat reported that the new Finance Bill 2024 includes a tax on tech companies earning income in Pakistan through digital means, making Netflix liable for taxes on charges to customers in the region.
Charges (PKR/without taxes)
Mobile: Rs. 250/month
Basic: Rs. 450/month
Standard: Rs. 800/month
Premium: Rs. 1,100/month
The Federal Board of Revenue (FBR) also recently served a notice to Netflix for the recovery of over Rs. 200 million in income tax under section 6 of the Income Tax Ordinance (ITO), 2001. It has been noted that companies providing offshore digital services have been using Double Taxation Agreements (DTA) to allegedly evade taxes.
DTA is a contract between two countries designed to avoid or minimize territorial double taxation of the same income. The government of Pakistan introduced section 6 in the Income Tax Ordinance 2001 to ensure that every non-resident person who receives any Pakistan-source royalty fee for offshore digital services or fee for technical services is taxed accordingly.
This new taxes on Netflix aims to ensure that tech companies like Netflix contribute their fair share to the national revenue, ultimately affecting the pricing for consumers in Pakistan.