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Banks in Pakistan have begun imposing a new tax on Netflix subscription fees

Following its directive last year to deduct 13 percent provincial sales tax on advertisement services, the Sindh Revenue Board (SRB) has now implemented additional taxes on Netflix subscriptions.

Banks are now applying a new tax regime on the popular video-on-demand streaming service in Pakistan. Users paying their Netflix subscription fees through debit or credit cards are now liable for a 3 percent Sales Tax on IT Services. In addition, there’s a 5 percent Advance Tax on International Transactions for filers, and a Card Transaction Charge of 4 percent plus Federal Excise Duty.

For non-filers, the advance tax rate on international transactions is higher at 10 percent. Banks are acting as withholding agents on behalf of the SRB to collect these additional taxes on behalf of Netflix. This action follows the SRB’s imposition of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023, which designated certain banks and entities licensed by the State Bank of Pakistan as collecting agents for IT and advertisement services.

Netflix’s subscription prices in Pakistani Rupees (PKR), excluding taxes, are as follows:
– Mobile: Rs. 250 per month
– Basic: Rs. 450 per month
– Standard: Rs. 800 per month
– Premium: Rs. 1,100 per month

According to Netflix’s website, users may be subject to additional taxes depending on their location.

Recently, the Finance Bill 2024 introduced a tax on tech companies earning income in Pakistan through digital means. Netflix, due to its business operations in Pakistan, is now required to pay taxes on its services provided to customers in the country.

These new taxes are expected to impact consumers directly, as they will now bear the burden of these additional costs. It’s noteworthy that the Federal Board of Revenue (FBR) has 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. There are also concerns about companies offering offshore digital services potentially using Double Taxation Agreements (DTA) to avoid tax obligations in Pakistan.

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