Pakistan moves to tax U.S. tech giants following similar Indian decision last year

Photo: ITU

Pakistan has decided to impose a 5% tax on digital revenues of companies including U.S. tech giants like Amazon, Facebook and Google,

Islamabad has is also looking to bring offshore-controlled companies into its tax net in an apparent attempt to tax Chinese earnings from the country.

Central Pakistan province, Punjab has issued notices to the online shopping companies including Daraz.pk  to collect general sales tax at a rate of 16 percent.

In neighboring India, a digital services tax was imposed on foreign and local tech firms after the U.S. tech leader Google lost a six-year court battle in the South Asian country in 2017.

An Indian court ordered Google and its subsidiary to pay tax on remittances.

In Pakistan, tax measures have been laid before the Parliament as part of the federal budget 2018-19, which is under discussion at the Senate Standing Committee on Finance.

While the standing committee rejected all such tax proposals, it will not deter the government from taxing the income of tech giants and other offshore-controlled entities.

Google Image via Wikipedia

According to a report in the Express Tribune, Islamabad wants to tax the digital advertising space along with hosting and maintenance of websites to tax the revenues of tech companies like Google and Yahoo, said Dr Mohammad Iqbal, Member Inland Revenue Policy of the FBR in a briefing to the standing committee.

Once the the National Assembly endorses the measure, technology companies will have to pay 5% tax on money earned from user data or digital advertising in Pakistan, regardless of their bricks-and-mortar presence.

The move also captures companies doing business in user data and online market places, such as Airbnb and Uber, according to the report.

Under the ongoing practice, companies are taxed on profits where they are headquartered, often in countries that offer lower tax rates.

“If the FBR starts taxing the big data, this could undermine Pakistan’s ability to get benefit from the digital revolution,” said Dr Musaddiq Malik, a member of the standing committee and spokesman of the prime minister.

Another proposed measure seeks to give FBR a right to declare a business transaction by a foreign entity fictitious, if it deems fit that the transaction does not have economic value and is only aimed at avoiding taxes, said Dr Mohammad Iqbal.

The amendment, according to Iqbal, has been proposed after a foreign entity sold its Rs10-billion company at Rs85 billion to another entity to avoid Rs20 billion in taxes.

Meanwhile, Pakistan’s Punjab province has decided to tax the online shopping companies with an objective to achieve the provincial GST target of Rs 130 billion  (US $ 1.15 billion).

“The volume of online business on the globe runs in trillions of dollars; We have every right to tax it,” Aman  Anwar Kidwaii, Additional Commissioner, Punjab Revenue Authority (PRA) said.

Meanwhile, Punjab Revenue Authority (PRA) has already sent notices to the US digital giants, Google and Facebook for tax on the digital revenues but so far failed to collect any revenues.