KARACHI: The Federal Board of Revenue (FBR) is devising ways to tax internet search engine Google Inc on the revenue generated through its business in Pakistan, said sources.
“It is difficult to levy taxes on the Internet search engine as it has no permanent establishment in Pakistan,” said a tax official. “However, since revenue is being generated through local advertisements, local departments have the right to collect tax under this head,” said official.
Google Inc is an American multinational corporation, providing Internet-related products and services, including internet search, cloud computing, software and advertising technologies around the world.
The recent discussion in the FBR on taxing the foreign company came in the limelight following the reports that Indian taxation authorities had issued notices to Google Inc for tax evasion. The Economic Times of India on November 13 reported that Google India had been slapped with a fine of 760 million Indian rupees ($13.8 million by the country’s income tax authorities).
The daily also reported search giant’s Indian arm had misled the department, under-declared its income, violated accounting rules and attempted to underreport revenues.
“The FBR chairman has instructed the tax departments to identify the business activities of the company in Pakistan,” said another FBR official. “So far, the FBR headquarters has not assigned the job to any tax department,” said official.
The authorities are finding agents working on behalf of Google Inc in Pakistan to inquire about the permanent establishment of the company and to assign jurisdiction to a tax department.
The official, however, said that in this case there is a possibility that the United States might express reservations as the two countries have an agreement regarding double taxation.
The authorities admitted that online commercial transactions have become sophisticated and tax departments have failed to generate tax revenue from such activities.
According to media reports, Pakistani advertisers spent Rs32 billion on advertisement in the print and electronic media in 2010-11, in which one percent of amount went to Internet advertising.
It also reported that Google accounts for 35 percent of total online advertisement spending.
Google officials on the condition of anonymity said that Pakistani authorities have no jurisdiction to tax the international entity.
About withholding tax by local advertisers, they said, big vendors pay the tax through proper invoices, while small vendors made transactions through credit cards and other means.