FBR serves Rs200 million income tax notice to Netflix

The Federal Board of Revenue (FBR) has issued a notice to Netflix, seeking the recovery of over Rs. 200 million in income tax, according to official sources as reported by ProPakistani.

Netflix, a popular streaming service offering a vast array of TV shows, movies, anime, and documentaries accessible on various internet-connected devices, has been providing subscription plans ranging from Rs. 250 to Rs. 1,100 per month to Pakistani viewers.

The report revealed that the Additional Commissioner CTO Islamabad has demanded over Rs. 200 million in taxes for two different years under section 6 of the Income Tax Ordinance, 2001. The company reportedly declared a revenue of Rs. 1.3 billion during the tax year 2021 alone within Pakistan.

Notably, Netflix, along with other similar companies, operates offshore digital services without physical offices in Pakistan. FBR served the notice to Netflix’s office in Singapore and noted its establishment of an office in the Netherlands.

It has come to light that these companies are exploiting Double Taxation Agreements (DTA) to allegedly evade taxes. DTA is an agreement between two countries aimed at preventing or reducing the double taxation of the same income.

Section 6 of the Income Tax Ordinance 2001, introduced by the Pakistani government, aims to tax non-resident individuals receiving Pakistan-source royalties for offshore digital services or technical service fees.

While the Sindh Revenue Board had already been taxing non-residents for offshore services, FBR has now joined in imposing income tax on non-resident entities.

Sources indicated that Netflix, through its tax consultant, contested the assessment orders before the Commissioner Appeal FBR. However, the Commissioner Appeal ruled in favor of FBR.