ISLAMABAD: Pakistan’s tax authority, the Federal Board of Revenue (FBR), has introduced a new mechanism to tax income earned by social media creators, using a benchmark of Rs195 ($0.71) earnings for every 1,000 YouTube views, officials said on Tuesday.

The new mechanism comes as Islamabad seeks to bring the country’s rapidly expanding digital economy into the formal tax system. It follows an April regulatory order by the FBR that introduced a new tax framework for individuals earning from content on social media platforms.

As part of the same framework, the tax authority issued a new notification on Sept. 23 to create a special procedure for taxing people earning income from “remunerative social media content.” It allows creators to deduct expenses of up to 30 percent of their revenue when calculating taxable income under the mechanism.

On Tuesday, an FBR official said the new rules did not apply to content that received views but generated no income, clarifying that the mechanism is intended for remunerative or monetized social media content.

“Once it is clear that the content is monetized, the formula multiplies Rs195 by the ‘total number of views in 1000s’,” the official, who requested anonymity as he was not authorized to speak to media, told Arab News.

Asked about the rationale behind the benchmark, the official said: “This figure of PKR195 was used because our research and interactions with people making monetized content in Pakistan lead us to this figure. This is the below average amount normal Pakistani content fetches per 1000 views on YouTube across different types of content and different types of content creators.”

For platforms other than YouTube, where creators may be paid according to different systems or may not be paid according to views, creators would declare their total remunerations earned during a specified period.

According to the FBR notification, remuneration is calculated as the higher of two amounts: the revenue-per-thousand-view benchmark multiplied by total views divided by 1,000, or the actual remuneration received by a creator, whether in cash or kind.

It allows content creators to demonstrate if their actual remuneration was below the Rs195-per-1,000-view benchmark.

“If a person is of the view that the total remuneration received is less than the threshold prescribed... the person is required to demonstrate evidence to this effect to the satisfaction of the Commissioner,” the notification read.

Speaking to Arab News, the FBR official said acceptable evidence could include platform revenue reports, payout statements matched to bank credits, withholding certificates and contracts or invoices relating to sponsorships and goods received.

“The tax commissioner can also ask a creator to provide access to their social media dashboard under relevant legal provisions,” the official said, adding a creator whose post simply attracts views but is not monetized, sponsored or otherwise remunerated would not be subject to the view-based estimate.

GIFTS, FREE PRODUCTS ALSO TAXABLE

The remuneration is not just limited to cash payments as per FBR.

“Payment in kind counts,” the official said, adding that free products or gifts provided in return for content can make a post “paid.”

Creators, who wanted to demonstrate that a post was unpaid, were advised to retain respective platform reports, showing monetization was switched off or earnings were zero; payout statements; bank statements; and records showing there was no sponsorship, brand deal or gifted product associated with the post.

The notification, however, does not specify a separate tax rate in this procedure; the applicable provisions of Pakistan’s Income Tax Ordinance continue to apply.

QUARTERLY ADVANCE TAX

The new mechanism also requires content creators to pay advance income tax for each quarter.

Creators must declare the income in a special section of their annual income tax return. If the declared income is lower than the amount calculated under the new rules, the relevant commissioner can rectify the return and recover the due amount.

The FBR notification specifically established the procedure for resident persons earning income from remunerative social media content. It defines the scope as resident persons deriving income from interaction with users in Pakistan through social media platforms.

Under the new rules, according to the FBR official, residents are covered without a minimum audience threshold, while non-residents face additional thresholds under respective rules.

“Non-residents are covered only above 50,000 users in Pakistan in a tax year, or 12,250 in a quarter,” the official added.