Govt tightens noose on social media

Cabinet okays rules that will require tech giants to open offices in country

Irshad Ansari/Saqib Virk September 29, 2021


In yet another bid to tighten the noose around social media, the federal cabinet has approved rules under which such platforms would have to work in accordance with the regulations of the government.

The government has decided to share these rules with international social media platforms.

To properly bring the social media websites under the national tax net and generate revenue from them, the government has amended social media rules and regulations that would require tech giants including Facebook, Google and YouTube to open their offices in the country.

The Federal Board of Revenue (FBR) has set a revenue target of over Rs10 billion from the sector. However, because of the absence of the offices of these companies in the county, the tax was not being collected at full capacity.

Tax was only being deducted on payments which were made through Pakistani banking channels.

Through the Finance Act, the federal government has provided digital advertising space, designing, digital and cyberspace for websites, online computing, access to all non-residents including Facebook, Amazon, Google and YouTube.

Pakistan has imposed a 15% tax on dozens of offshore digital services provided to consumers, including online buying and selling.

The purpose is to charge tax on digital business activities, including virtual commodities in the form of digital goods like software, website developments, application creation and digital assets, including digital services like online advertisements or digital consumer analysis.

Read More: Govt will share revisions to social media rules within fortnight

FBR officials said that a new sub-clause, 22B, has been added to Section 2 of the Income Tax Ordinance through the Finance Act, which defined fees on offshore digital services.

The clause states that the fee on offshore digital services is the payment by any non-resident on the services provided for online advertising.

Non-residents are being paid by the local persons obtaining services by way of reverse charge mechanism. Therefore, tax received by the national exchequer is the inflated cost for the taxpayers in the country without these non-residents being charged for it.

Similarly, Article 6 of the Income Tax Ordinance has also been amended through the same Finance Act and the tax has been imposed along with royalty.

Tax collection from this sector was almost non-existent. Therefore, the government has decided to make it mandatory for these companies to set up offices in Pakistan.

A day earlier, the Islamabad High Court had instructed the authorities concerned to consult with all stakeholders including Pakistan Federal Union of Journalists (PFUJ) regarding social media rules. IHC Chief Justice Athar Minallah was hearing petitions filed by various people against the notices of Federal Investigation Agency (FIA) and its powers.

Last year, technology companies had announced that the regulations would make it difficult for them to continue their operations in the country after a day the government notified rules that defined how social media will be governed in Pakistan.

The rules titled, “Removal and Blocking of Unlawful Online Content (Procedure, Oversight and Safeguards) Rules 2020,” were framed under the Prevention of Electronic Crimes Act 2016 (Peca).

The Asia Internet Coalition (AIC), which includes tech giants Facebook, Google, Apple, Amazon and Twitter, expressed its alarm over the scope of the new law targeting internet companies, as well as the government’s “opaque process” by which these rules were developed.

The government passed social media rules on November 20, 2020 despite criticism and protests from human rights activists and organisations.

Under pressure, the government in March formed a committee to review social media regulations introduced last year.

The development came after the federal government in January informed the IHC that it would review the regulations in an ongoing case challenging their formation.


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