Pakistani banks to implement new taxes on Netflix subscriptions

Pakistan now face a 3 percent Sales Tax on cloud services and 5 percent advance tax on international transactions.

Pakistani banks have begun charging new taxes on Netflix subscription fees following the Sindh Revenue Board’s (SRB) recent tax impositions. The SRB, which last year mandated a 13 percent provincial sales tax on advertisement services, has now extended its tax net to include the popular streaming service.

Many local media outlets reported that , Netflix users in Pakistan now face a 3 percent Sales Tax on IT Services when paying with debit or credit cards. Additionally, subscribers are subjected to a 5 percent Advance Tax on International Transactions (for tax filers), alongside a 4 percent Card Transaction Charge, which includes a Federal Excise Duty. For non-filers, the advance tax on international transactions rises to 10 percent.

Read: Is Pakistan home to world's cheapest Netflix subscription?

Banks have been designated as withholding agents for 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.

Under these rules, a 3 percent 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.

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

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.

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