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Netflix Ordered to Pay Rs. 200 Million Tax By FBR

Netflix Ordered to Pay Rs. 200 Million Tax By FBR

The Federal Board of Revenue (FBR) has issued a notice to Netflix for the recovery of over Rs. 200 million in income tax.

Netflix, a streaming service offering a diverse range of TV shows, movies, anime, documentaries, and more on numerous internet-connected devices, has various subscription plans for viewers in Pakistan, ranging from Rs. 250 to Rs. 1,100 per month.

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According to sources, the Additional Commissioner of CTO Islamabad has demanded over Rs. 200 million in taxes for two different years under section 6 of the Income Tax Ordinance (ITO) 2001. Netflix declared Rs. 1.3 billion in revenue in Pakistan for the tax year 2021 alone.

Sources further indicated that Netflix, along with other companies, provides offshore digital services without having offices in Pakistan. The FBR served the notice to Netflix’s office in Singapore, although Netflix also has an office in the Netherlands.

These companies are reportedly using Double Taxation Agreements (DTA) to evade taxes. DTA is an agreement between two countries to avoid or minimize double taxation of the same income.

The Pakistani government introduced section 6 in the Income Tax Ordinance 2001 to tax non-resident individuals receiving Pakistan-source royalties or fees for offshore digital or technical services. While the Sindh Revenue Board was already taxing non-residents for offshore services, the FBR has now also imposed income tax on non-resident entities.

Netflix, through its tax consultant, challenged the assessment orders before the Commissioner of Appeals at FBR. However, the Commissioner ruled in favor of the FBR.