Pakistani banks are set to introduce new taxes on Netflix subscriptions following recent mandates by the Sindh Revenue Board (SRB).
This move came as part of an expanded tax strategy targeting digital services.
Previously, the SRB implemented a 13 percent sales tax on advertising services, and now it has broadened its scope to include streaming platforms like Netflix.
Reports indicated that Netflix users in Pakistan will now incur a 3 percent Sales Tax on IT Services for payments made via debit or credit cards.
Additionally, subscribers will face a 5 percent Advance Tax on International Transactions if they are tax filers, while non-filers will see this rate increase to 10 percent.
There is also a 4 percent Card Transaction Charge that incorporates a Federal Excise Duty.Designated as withholding agents, banks are tasked with collecting these taxes on behalf of the SRB.
This responsibility is part of the newly introduced Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023.
These rules require certain banks and entities authorized by the State Bank of Pakistan to gather sales tax on IT and advertisement services.
Under these guidelines, a 3 percent tax is levied on services provided by software or IT consultants, including cloud-based streaming services like Netflix, when payments are processed through a collection agent to a foreign service provider.
In another development, the Finance Bill 2024 introduces taxes on tech firms that generate revenue in Pakistan through digital operations.
This means Netflix, given its business presence in the country, must now pay taxes on its earnings from Pakistani customers.
Additionally, the Federal Board of Revenue (FBR) recently issued a notice demanding Netflix pay over Rs. 200 million in income tax, citing section 6 of the Income Tax Ordinance, 2001.
Offshore digital service providers, including Netflix, have been accused of exploiting Double Taxation Agreements (DTA) to avoid tax liabilities.
The implementation of section 6 aims to ensure that non-resident entities earning income from Pakistan fulfill their tax obligations.
These tax measures are expected to directly affect consumers, as the added costs will likely be passed on to Netflix subscribers.
