FBR directs Netflix to pay Rs. 200 million income tax

The Federal Board of Revenue (FBR) has initiated action against Netflix, serving the streaming service with a notice for the recovery of over Rs. 200 million in income tax, as confirmed by official sources speaking to ProPakistani.

Netflix, renowned for its diverse range of content including TV shows, movies, documentaries, and more, accessible on various internet-connected devices, offers subscription plans in Pakistan priced between Rs. 250 to Rs. 1,100 per month. The notice, generated by the Additional Commissioner CTO Islamabad under section 6 of the Income Tax Ordinance 2001, pertains to revenue declared by Netflix totaling Rs. 1.3 billion for the tax year 2021 in Pakistan alone.

Sources have revealed that Netflix, along with other similar entities, operates offshore digital services in Pakistan without maintaining a physical presence within the country. The FBR has directed its attention to Netflix’s offices in Singapore and the Netherlands. Furthermore, it has come to light that companies providing offshore digital services may exploit Double Taxation Agreements (DTAs) to evade taxes, a practice that the FBR seeks to address through its enforcement measures.

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Section 6 of the Income Tax Ordinance 2001, introduced by the government of Pakistan, aims to regulate the taxation of non-resident entities receiving royalties or fees for offshore digital services or technical services originating from Pakistan. Despite challenges from Netflix and its tax consultant against the assessment orders, the Commissioner Appeal FBR has upheld the FBR’s decisions, indicating a concerted effort by the tax authority to enforce compliance with tax regulations within the digital services sector.