- New mechanism uses Rs195 per 1,000 YouTube views as benchmark for calculating creators’ income tax
- Creators say formula based on assumed earnings, does not take into account differing operating expenses
ISLAMABAD: Pakistan’s move last week to introduce a new mechanism to tax income earned by creators on YouTube and other social media platforms has sparked confusion among content creators, who say the government’s earnings formula and limits on deductible expenses could increase their tax burden and discourage investment in the digital economy.
The Federal Board of Revenue (FBR), Pakistan’s main tax authority, recently 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.
The mechanism is part of Islamabad’s efforts to bring the 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 content on social media platforms.
Talha Ahad, who hosts podcasts on YouTube and is also the founder of the digital production company TCM, said creators were struggling to understand how the FBR’s new procedure would work in an industry where many people operate independently and receive payments through personal bank accounts.
“People are really confused, especially in the content creator economy,” Ahad told Arab News on Friday. “There is no clear direction on how this thing is going to roll out.”
TCM Originals, which is operated by Ahad’s team, has over 530,000 subscribers on YouTube. He said Pakistan was still developing its digital content industry and lagged behind countries such as the US and India.
He said this makes it vital for policymakers to understand the digital sector before introducing rules that could affect its growth.
“I think rather than doing double taxation and putting a tax on this economy, the government should be helping them a lot more rather than pushing them toward the wall,” he said.
The new benchmark entails the FBR uses the Rs195 per 1,000 YouTube views as a revenue benchmark and compares it with creators’ actual earnings to calculate their incomes.
An FBR official told Arab News last week that the figure was a benchmark, not a final determination, and creators could provide evidence if their actual earnings were lower. It allows creators to deduct expenses of up to 30 percent of their revenue when calculating taxable income.
NOT ALL ‘PURE PROFIT’
Content creators say revenue secured from content varies depending on factors such as audience and content format. They say operating costs differ significantly between individual creators and larger production teams.
Shahzad Ghias, a Karachi-based comedian and political commentator, said the government was basing its calculations on assumed earnings rather than creators’ actual financial circumstances.
Ghias hosts a podcast titled “The Pakistan Experience” which features long-form conversations about Pakistan’s politics, society, history, culture and current affairs. He has over 351,000 subscribers on YouTube.
“The new FBR formula is based on assumed earnings,” Ghias told Arab News. “I’m not sure how many tax regimes around the world are based on assumed earnings.”
He said YouTube monetization depended on several variables, including where viewers were located and whether they watched short-form or long-form videos.
“You do not see the sales of a product or all the money coming in and assume that that is all pure profit,” he added.
Ghias questioned how authorities determined the 30 percent expense cap, pointing to the cost of cameras, lighting equipment, salaries, editors, camera operators and social media managers.
He said production expenses, in certain months, could exceed even income generated by creators from YouTube. He said this makes fixed deduction limits difficult for businesses that have to deal with significant overheads.
Ahad raised similar concerns, saying the same expense limit could have very different implications for a creator working alone and a media company like TCM, that employs dozens.
“I think what the government should do is really to sit with the content creators and people from the ecosystem to understand how this ecosystem operates,” he said.
’NOT BE A BOTTLENECK’
Pakistani content creators are growing. Figures released by Google Pakistan in December showed that more than 95,000 Pakistani YouTube channels had over 10,000 subscribers. Over 13,000 had more than 100,000 subscribers, while over 1,000 had crossed the one-million subscriber mark.
Islamabad-based YouTuber Hamza Bhatti questioned how YouTube income would be treated alongside earnings from other freelance activities and foreign payments.
He warned that rules perceived as unfair or difficult to apply could encourage some people to seek alternative ways of receiving payments, potentially pushing transactions outside formal channels.
“If a single thing is applied to everyone, then people try to find other ways, and because of that, things go into the black market, loopholes start forming for everything, and the money that was coming to the government is also lost,” he warned.
However, Bhatti rejected the suggestion that creators could simply move their businesses abroad in response to the new rules, noting that their audiences and established platforms were often closely tied to Pakistan.
“I would not move my content creation abroad because I think it would be very stupid,” he said, adding that creators who had spent years building audiences in Pakistan could not easily relocate their content businesses.
However, Ahad warned that unclear rules and additional tax obligations could add to the reasons young people consider moving abroad, particularly because digital content businesses can often be operated remotely.
He said many creators and media entrepreneurs had spent the past one or two years trying to build a sustainable ecosystem in Pakistan.
’The government should not be a bottleneck,” he said. “It should support the whole ecosystem, the way it has supported freelancers and IT companies.”
