Pakistan introduces new tax rules for social media creators
What's the story
Pakistan's Federal Board of Revenue (FBR) has introduced a new framework to tax social media content creators. The move aims to widen the country's tax base amid its financial struggles. Under this new system, FBR has set a benchmark of PKR 195 (₹68.14) for every 1,000 views on monetized YouTube content. This rate also applies to creators on Facebook, Instagram, and TikTok.
Tax implications
Taxable income based on actual remuneration or estimated earnings
The new tax rules, notified on September 23, will impact how much creators are required to pay in tax.
Creators will be taxed on whichever is higher: their actual remuneration or an estimated PKR 195 for every 1,000 views.
Only 30% of earnings can be claimed as allowable expenses; the other 70% is treated as taxable income.
Creator backlash
Creators, experts slam FBR's new tax
The new tax rules have faced criticism from creators and industry experts.
Three anonymous creators told Nikkei Asia that the benchmark of PKR 195 per 1,000 views is too high and unfair.
One creator said, "The videos produced by Pakistani creators and those viewed by Pakistani audiences have very small payout rates."
Another added, "This calculation by FBR is an oversimplification of the YouTube creator's payout system."
Defense stance
FBR defends new tax rules
Despite the backlash, FBR has defended its new tax rules.
An official told the outlet, "This was used because our research and interactions with people making monetized content in Pakistan led us to this figure."
"This is below average amount a normal Pakistani content fetches per 1,000 views on YouTube across different types of content."
Relocation worries
'A regime that taxes gross receipts...'
The new tax rules have also raised concerns that creators might relocate their businesses or income outside Pakistan to avoid taxes.
Ikram ul Haq, who runs a legal and tax consultancy in Lahore, said, "A regime that taxes gross receipts and imposes deemed-income benchmarks may discourage creators from locating and expanding their businesses [in Pakistan], particularly where other jurisdictions tax verified net profits."
Tax evasion concerns
'If the goal is formalizing the sector...'
Farhad Ahmed Jarral, a communications strategist in Islamabad, warned that the new tax rules could lead creators to find alternative ways to keep their earnings outside the tax system.
He said, "Every extra rupee withheld at the bank is an incentive to route money some other way, through crypto, third-country accounts or informal channels."
"If the goal is formalizing the sector, this pushes in the opposite direction," Jarral added.
Tax evolution
Banks required to withhold tax on social media revenue
The new tax rules for content creators come after Pakistan's introduction of another measure in July.
This measure requires banks to withhold a 5% tax when social media revenue reaches creators' accounts from platforms like YouTube, Facebook, Instagram, and TikTok.
The FBR's procedure applies to both resident and non-resident individuals earning Pakistan-sourced income through interactions with users in Pakistan.