In a recent development, the Federal Board of Revenue (FBR) has issued a notice to Netflix, demanding a hefty sum of over Rs200 million (approximately $700,000) in income tax. ProPakistani reported that the additional commissioner of the corporate tax office in Islamabad has generated tax demands for Netflix, covering two different tax years.
This action comes in accordance with Section 6 of Pakistan’s Income Tax Ordinance of 2001, which empowers taxation on non-resident companies offering digital services to Pakistani consumers. Netflix, the streaming giant, provides a variety of subscription plans in Pakistan, with monthly fees ranging from Rs250 to Rs1,100.
According to the report, Netflix reported revenues of Rs1.3 billion solely from its operations in Pakistan during the 2021 tax year. It has been observed that Netflix, among other companies, has been delivering digital services to Pakistani customers without establishing a physical presence within the country. Initially, the FBR served the tax notice to Netflix’s Singapore office, although the company has also established an office in the Netherlands in recent years.
The introduction of Section 6 in the Income Tax Ordinance was aimed at ensuring that non-resident entities deriving income from Pakistan-source royalties, fees for digital services, or technical services are subject to taxation. However, certain companies have allegedly attempted to exploit double taxation agreements to evade paying the required taxes.
This move by the FBR reflects its commitment to enforcing tax regulations on digital service providers operating in Pakistan, aiming to ensure a fair and equitable tax regime in the digital economy landscape.
