Pakistani Banks to Introduce New Taxes on Netflix Subscriptions

Pakistani Banks Now Charging New Taxes on Netflix Subscriptions Following SRB’s Recent Impositions

Pakistani banks have started applying new taxes on Netflix subscription fees following the Sindh Revenue Board’s (SRB) recent tax decisions. Last year, the SRB imposed a 13% provincial sales tax on advertisement services. This tax net now includes popular streaming services like Netflix.

Pakistani Banks Impose New Taxes on Netflix Users:

• 3% Sales Tax on IT Services: Applied when paying with debit or credit cards.
• 5% Advance Tax on International Transactions: For tax filers.
• 10% Advance Tax on International Transactions: For non-filers.
• 4% Card Transaction Charge: Includes Federal Excise Duty.

Banks have been designated as withholding agents by the SRB to collect these taxes. This follows the introduction of the Sindh Sales Tax Special Procedure (Tax on Specified Services) Rules, 2023, which appointed certain banks and other entities, authorized by the State Bank of Pakistan, as collecting agents for sales tax on IT and advertisement services.

Specifics of the New Tax Rules

• A 3% tax is imposed on services provided by software or IT-based system development consultants, including cloud-based content streaming services like Netflix, for payments made through a collection agent to any non-resident service provider.

Finance Bill 2024 and Digital Services Tax

• The new Finance Bill 2024 includes a tax on tech companies earning income in Pakistan through digital means.
• Netflix, due to its business presence in Pakistan, is now required to pay taxes for charging customers in the region.

Recent Developments

• Last month, the Federal Board of Revenue (FBR) issued a notice to Netflix for the recovery of over Rs. 200 million in income tax under section 6 of the Income Tax Ordinance, 2001. Offshore digital service providers, including Netflix, have been accused of using Double Taxation Agreements (DTA) to evade taxes.
• The government introduced section 6 to ensure non-resident entities receiving Pakistan-source income pay the required taxes.

Impact on Consumers

These tax changes are expected to impact consumers directly, as the additional costs will likely be passed on to Netflix subscribers.

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