Netflix Faces Income Tax Notice of Over Rs. 200 Million in Pakistan
Netflix, the popular online streaming service, has recently come under scrutiny from the Federal Board of Revenue (FBR) in Pakistan. The FBR has sent a notice to Netflix seeking to recover more than Rs. 200 million in income tax. This move by the FBR is part of its efforts to generate additional revenue for the country.
Netflix provides its subscribers in Pakistan with access to a wide range of content, including award-winning TV shows, movies, documentaries, and more. The streaming service offers various subscription packages, with prices ranging from Rs. 250 to Rs. 1,100 per month. This has made Netflix a popular choice among viewers in Pakistan, who can now subscribe to the service.
According to sources, the Additional Commissioner of the Central Tax Office in Islamabad is responsible for demanding more than Rs. 200 million in income tax from Netflix for two different years. This action is in compliance with section 6 of the Income Tax Act 2001. The corporation has reported an income of Rs. 1.3 billion for the tax year 2021 alone, all of which was recorded in Pakistan.
Interestingly, it has been revealed that Netflix and other digital service providers operating in other countries do not have a physical presence in Pakistan. However, they are still offering their services to Pakistani viewers. The FBR has already sent a notice to Netflix’s office in Singapore, and the company had previously established an office in the Netherlands.
Furthermore, it has been discovered that these digital service providers are using Double Taxation Agreements (DTAs) to avoid paying taxes. DTAs are bilateral trade agreements between two countries aimed at preventing double taxation on the same income. This raises concerns about companies exploiting these agreements to evade taxes.
In response to this situation, the government of Pakistan has implemented section 6 of the Income Tax Ordinance 2001. This ensures that non-resident individuals or companies receiving royalty fees for offshore digital services or charging for technical services are compliant with the law. The Sindh Revenue Board had already started imposing taxes on non-residents for offshore services, while the FBR has recently begun levying income tax on individuals who do not reside in Pakistan.
Netflix, through its tax advisor, has submitted an objection to the assessment orders issued by the FBR. However, the Commissioner of Appeal has made a decision that appears to favor the tax department. This indicates that Netflix will have to navigate through the appeals process to resolve this issue.
In conclusion, the income tax notice from the FBR poses a significant challenge for Netflix in Pakistan. The company’s revenue and operations in the country are under scrutiny, and it remains to be seen how this situation will be resolved. The use of DTAs by digital service providers to avoid taxes raises broader questions about international tax regulations and the need for effective enforcement mechanisms.
