The Federal Board of Revenue (FBR) has mandated Netflix to pay Rs. 200 million in income tax. The notice demands payment for income generated from Pakistan, indicating a big move towards taxing digital service providers operating without local offices.
Netflix to Pay Rs. 200 Million In Income Tax: The FBR Notice
Netflix is renowned for its extensive library of TV shows, movies, documentaries, and more, accessible across various internet-connected devices. Offering subscription plans ranging from Rs. 250 to Rs. 1,100 per month, Netflix has amassed a considerable user base in Pakistan. The FBR has issued a notice to Netflix’s Singapore office, stipulating that the company owes over Rs. 200 million for two tax years, as per section 6 of the Income Tax Ordinance (ITO) 2001.
According to official sources, Netflix declared Rs. 1.3 billion in revenue from Pakistan alone in the tax year 2021. The Additional Commissioner of the Corporate Tax Office (CTO) in Islamabad generated this tax demand, underscoring the revenue potential from digital services in the region.
Implications for Offshore Digital Services
The FBR’s action against Netflix highlights the challenges of taxing offshore digital services. Many such companies, including Netflix, operate without physical offices in Pakistan, often leveraging Double Taxation Agreements (DTA) to avoid local tax liabilities. DTAs are agreements between two countries to prevent the same income from being taxed by both jurisdictions. However, the FBR’s move suggests a tightening of regulations to ensure that all income generated within Pakistan’s borders is appropriately taxed.
Pakistan’s government had already addressed this issue by introducing section 6 in the ITO 2001, targeting non-resident entities earning royalties or fees from Pakistan. While the Sindh Revenue Board had been taxing such entities for offshore services, the FBR’s latest efforts signal a more comprehensive approach to ensuring compliance. Netflix’s challenge to these tax assessments through its consultant was unsuccessful, with the Commissioner Appeal FBR upholding the original tax demand.
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