Banks Are Now Charging New Tax on Netflix Subscription Fees in Pakistan

July 9, 2024Zayn0

Netflix is now subject to additional taxes from the Sindh Revenue Board (SRB), which came after forcing banks to withhold 13% of provincial sales tax on advertisement services last year. In Pakistan, banks have started imposing additional taxes on the video-on-demand streaming service.

Banks Imposing Extra Taxes on Netflix Subscriptions

When paying for their subscriptions with debit or credit cards, Netflix subscribers are now required to pay a 3 per cent sales tax on IT services. In addition, there is a federal excise duty, a 4 per cent card transaction charge, and a 5 per cent advance tax on international transactions (Filers).

SRB’s Notification and Designated “Collecting Agents”

Currently, banks are working with withholding agents on behalf of SRB to get Netflix to pay the extra taxes. Notably, on September 27, 2023, SRB issued notification No. 3-4/46/2023, dated September 27, 2023, which established the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023 (the Rules). The Rules designated specific banks and other organizations as “collecting agents” for sales tax on IT and advertisement services, provided they held a license or authorization from the State Bank of Pakistan.

3% Tax on Cloud-Based Streaming Services

As a result, the board levied a 3 per cent tax on services rendered by consultants for software or IT-based system development, which includes cloud-based streaming services (such as Netflix) for which payment is made to any service provider that is not based in Pakistan through any method of payment collection handled by a collection agent.

Potential Impact on Subscription Costs 

Cost (PKR/excl. taxes)

  • Monthly mobile: Rs. 250
  • Base: INR 450 per month
  • Typical: Rs. 800 per month
  • Monthly premium: INR 1,100

It is important to note that, by section 6 of the ITO, 2001, Netflix received a notification from FBR last month demanding the recovery of nearly Rs. 200 million in unpaid income tax. Additionally, it has come to light that businesses providing offshore digital services are purportedly avoiding taxes by using Double Taxation Agreements (DTAs).

Efforts to Tax Offshore Digital Services 

A DTA is an agreement between two nations to prevent or lessen (minimize) territorial double taxation of the same income by those nations. Section 6 of the Income Tax Ordinance 2001 was adopted by the Pakistani government to require non-resident individuals who receive any royalty fees for offshore digital services or fees for technical services.

 

Zayn

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