Pakistan imposes new taxes on Netflix subscriptions

Pakistani banks have started charging new taxes on Netflix subscription fees following recent tax impositions by the Sindh Revenue Board (SRB).

Last year, the SRB mandated a 13% provincial sales tax on advertisement services, and it has now extended its tax net to include the popular streaming service.

According to local media reports, Netflix users in Pakistan now face a 3% Sales Tax on IT Services when paying with debit or credit cards. Additionally, subscribers are subjected to a 5% Advance Tax on International Transactions (for tax filers), and a 4% Card Transaction Charge, which includes a Federal Excise Duty. For non-filers, the advance tax on international transactions increases to 10%.

Banks have been designated as withholding agents for the SRB to collect these taxes. This followed the introduction of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023. These rules appoint certain banks and other entities, authorized by the State Bank of Pakistan, as collecting agents for sales tax on IT and advertisement services.

In a related development, the new Finance Bill 2024 included a tax on tech companies earning income in Pakistan through digital means. As a result, Netflix, due to its business presence in Pakistan, is now required to pay taxes for charging customers in the region.
Last month, 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 accused of using Double Taxation Agreements (DTA) to evade taxes. The government introduced section 6 to ensure non-resident entities receiving Pakistan-source income pay the required taxes.

These tax changes are expected to impact consumers directly, as the additional costs will likely be passed on to Netflix subscribers. Netflix users are now subjected to a series of taxes when paying their subscription fees with debit or credit cards, including:

  • A 3% sales tax on IT services
  • A 5% advance tax on international transactions for filers
  • A 4% card transaction charge, including federal excise duty
  • A 3% Sindh Sales Tax on cloud-based content streaming services

Netflix offers several subscription tiers in the region, with prices ranging from Rs. 250 per month for the Mobile plan to Rs. 1,100 per month for the Premium plan.
Netflix states on its website that customers may be charged additional taxes depending on their location, on top of the base subscription fees.

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