In the recent news, the Federal Cabinet of Pakistan has approved a framework that requires social media giants to operate following the rules and regulations of the Government of Pakistan. As per the devised framework, social media giants including Facebook, Google, YouTube, and Twitter will be expected to establish their offices in the country and directly file taxes to the Federal Board of Revenue (FBR).
The Initial Targeted Tax Collection Amount was of PKR 10 Billion
The FBR has determined a revenue collection target of Rs. 10 billion from the social media division for FY 2021-22. Though, due to the absence of offices of social medial giants in Pakistan, the FBR is expected to miss out on the targeted amount. The national bureau is going to collect only a fraction of this target and that too by deducting tax from the users of these social media giants’ services in Pakistan for availing their digital services.
The government of Pakistan has introduced a sub-clause 22B in section 2 and amended section 6 of the Income Tax Ordinance through the Finance Act, imposing a 15% fee on all foreign digital services. The purpose of amending the Income Tax Ordinance is to impose taxes on various digital business activities, including virtual commodities such as software, websites, applications, and other digital assets.
The Government is Using Reverse Charge Mechanism on Social Media Giants
In addition to this, the government also envisions bringing digital services like online marketing and shopping, online advertisements, and digital consumer analysis under the tax net. The justification behind the move is to collect the majority of the taxes from the foreign social media giants for providing digital services in the country instead of collecting the taxes from the citizens by reverse charge mechanism for using their digital services.
Considering tax collection from the social media giants is expected to remain nearly non-existent despite the amendments to the Income Tax Ordinance, the state has chosen to propose a framework that demands the companies to open their offices and operate directly from Pakistan.