FBR orders Netflix to pay Rs. 200 million income tax

Non-residents were already taxed for offshore services by the Sindh Revenue Board, but the FBR now imposes income tax on them as well.

ISLAMABAD: The Federal Board of Revenue (FBR) has sent a notice to Netflix seeking to recover more than Rs. 200 million in income taxes, here on Monday.

According to the data, Netflix has offered various plans ranging from Rs. 250 to Rs. 1,100 per month to its customers, and users in Pakistan have also received Netflix subscriptions.

Additional Commissioner CTO Islamabad created a demand of more than Rs. 200 million in two distinct years under Section 6 of the ITO, 2001.

The corporation declared Rs. 1.3 billion in earnings for the tax year 2021 alone in Pakistan. Netflix and other corporations provide offshore digital services without establishing an office in Pakistan.

As per the reports, the FBR served notice to Netflix’s Singapore office, and the company had already established an operation in the Netherlands.

It has also been shown that corporations that provide offshore digital services use Double Taxation Agreements (DTA) to purportedly dodge taxes.

It is important to highlight that a DTA is a contract made by two nations to avoid or alleviate (minimize) territorial double taxation of the same income by both countries.

It is worth noting that the Pakistani government enacted Section 6 of the Income Tax Ordinance 2001 to bring every non-resident individual who earns any Pakistan-sourced royalty fee for offshore digital services or price for technical services.

Non-residents were already taxed for offshore services by the Sindh Revenue Board, but the FBR now imposes income tax on them as well.

The company, through its tax adviser, appealed the assessment orders before the Commissioner Appeal FBR, but the Commissioner Appeal decided in favour of FBR.