Banks to Implement New Taxes on Netflix Subscriptions

Pakistani banks have started implementing new taxes on Netflix subscription fees, following the recent tax measures introduced by the Sindh Revenue Board (SRB).

Last year, the SRB imposed a 13 percent provincial sales tax on advertisement services, and they have now expanded this to include streaming services like Netflix.

As reported by various local media outlets, Netflix users in Pakistan are now subject to a 3 percent Sales Tax on IT Services when using debit or credit cards. Additionally, subscribers face a 5 percent Advance Tax on International Transactions (for tax filers), and a 4 percent Card Transaction Charge, which encompasses a Federal Excise Duty. For those who are not tax filers, the advance tax on international transactions increases to 10 percent.

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The SRB has appointed banks as withholding agents to collect these taxes, following the implementation of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023.

These rules designate certain banks and other entities, authorized by the State Bank of Pakistan, to collect sales tax on IT and advertisement services.

Under these new regulations, the SRB applies a 3 percent tax to services provided by software or IT-based system development consultants, including cloud-based content streaming services like Netflix, for payments made through a collection agent to any non-resident service provider.

Furthermore, the new Finance Bill 2024 imposes a tax on tech companies earning income in Pakistan through digital means. Consequently, Netflix, due to its business operations in Pakistan, now has to pay taxes for services charged to customers in the region.

Last month, the Federal Board of Revenue (FBR) issued a notice to Netflix to recover over Rs. 200 million in income tax under section 6 of the Income Tax Ordinance, 2001. The FBR has accused offshore digital service providers, such as Netflix, of using Double Taxation Agreements (DTA) to avoid taxes.

The government introduced section 6 to ensure that non-resident entities receiving income from Pakistani sources pay the necessary taxes.These new tax measures are likely to have a direct impact on consumers, as Netflix subscribers will probably bear the additional costs.

Also Read: Netflix Packages Pakistan – Netflix Subscription Price – 2024