FBR Demands Rs. 200 Million in Taxes from Netflix

The Federal Board of Revenue (FBR) has issued a notice to Netflix, demanding over Rs. 200 million in income tax payments.

Netflix, a streaming platform providing a vast selection of award-winning TV shows, movies, anime, and documentaries accessible on various internet-connected devices, has been offering subscription plans in Pakistan ranging from Rs. 250 to Rs. 1,100 per month.

According to Propakistani, the Additional Commissioner of CTO Islamabad has issued a demand for over Rs. 200 million in taxes for two different fiscal years under section 6 of the Income Tax Ordinance, 2001. Netflix reported Rs. 1.3 billion in revenue from its Pakistani operations in the 2021 tax year alone.

Sources indicated that Netflix, along with other companies, provides offshore digital services without having physical offices in Pakistan. The FBR served the notice to Netflix’s Singapore office, although Netflix also has an office in the Netherlands.

It has been revealed that companies offering offshore digital services often leverage Double Taxation Agreements (DTA) to allegedly avoid paying taxes. DTA agreements are treaties between two countries designed to prevent or mitigate double taxation on the same income by both countries.

To address this, the Pakistani government introduced section 6 in the Income Tax Ordinance 2001, targeting non-resident entities earning Pakistan-source royalties or fees for offshore digital and technical services. While the Sindh Revenue Board had already been taxing non-residents for offshore services, the FBR has now also started imposing income taxes on these non-resident entities.

Sources mentioned that Netflix, through its tax consultant, challenged the assessment orders before the Commissioner of Appeals at the FBR. However, the Commissioner of Appeals ruled in favor of the FBR.

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