FBR Orders Netflix to Pay Rs. 200 Million Income Tax

The Federal Board of Revenue (FBR) has issued a notice to Netflix, seeking the recovery of over Rs. 200 million in income tax, according to ProPakistani. Netflix is known for streaming TV shows, movies, anime, documentaries, and more. Pakistani users have options to subscribe with plans ranging from Rs. 250 to Rs. 1,100 per month.

The report said an Additional Commissioner of the Chief Tax Office in Islamabad had demanded over Rs. 200 million in taxes for two different years under Section 6 of the Income Tax Ordinance 2001. It is pertinent to mention that the company reportedly declared a revenue of Rs. 1.3 billion during tax year 2021 from Pakistan.

Furthermore, Netflix has an extensive user base in Pakistan; however, such companies usually offer their digital services from outside the country. The tax notice has been served to Netflix’s office in Singapore, and it is noted that the company also has an office in the Netherlands.

It has been disclosed that Netflix and a couple of other companies resort to this, perhaps to avoid tax. DTAs are two-country treaties designed to eliminate or minimize double taxation of similar types of income. These clauses are sometimes used as a mechanism to avoid tax in one or both countries.

Recently, Section 6 of the Income Tax Ordinance 2001, through the Pakistani government, intends to tax non-resident individuals getting royalties from Pakistani sources to supply offshore digital services or fees for technical services, etc. Although the Sindh Revenue Board was already imposing taxes on the revenue arising from these offshore services from non-resident entities, the FBR has now demanded income tax from Netflix.

The report added that Netflix appealed before the Commissioner Appeal against the tax assessment. However, the FBR Commissioner’s Appeal backed the authority by the case and the decision of the FBR.

The move by FBR against Netflix shows the country’s strong determination to collect net taxes from digital service providers who were assumed not to have physical presence in the country.

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