ISLAMABAD – The Federal Board of Revenue (FBR) has assured Google that it will not be subject to Pakistan’s newly introduced 5% Digital Presence Proceeds Tax, clarifying that the levy only applies to foreign tech firms without a registered presence in the country.
The assurance was conveyed to Kyle Gardner, Google’s South Asia government affairs representative, following concerns over the scope of the law. The Digital Presence Proceeds Act 2025, passed in June, was intended to expand tax collection from global digital companies operating in Pakistan without physical offices.
However, the FBR explained that since Google has a registered branch office in Pakistan, it qualifies as a tax resident and falls outside the Act’s scope.
“Since you are operating through a registered branch, your operations fall squarely within this exemption. Similarly, the digital services tax provisions do not apply to tax residents of Pakistan,” the FBR told Google in an official communication.
How Google’s taxation is structured
Until now, Google was taxed at 10% under Section 152 of the Income Tax Ordinance—a rate recently increased to 15%. But after this clarification, Google could pay as little as 5% tax on operations managed outside Pakistan.
The government also assured Google it would not face double taxation, as the new Digital Presence Proceeds Tax and Section 152 cannot be applied to the same transaction.
In an even bigger incentive, Google was offered complete income tax exemption if it relocates its local branch to a Special Technology Zone (STZ), which enjoys tax-free status until 2035 under Pakistani law.
Criticism over exemptions
The move has sparked debate over whether the Digital Presence Proceeds Act will meet its original goal of taxing international firms with large digital footprints but no local offices.
Critics say the government may have passed the law without fully assessing its implications. While Google is the largest contributor to Pakistan’s digital service tax revenue, other major players like Meta, Amazon, Microsoft, and Netflix contribute significantly less—around Rs 1 billion collectively each year.
By exempting companies with registered branches, some analysts fear the law might fail to generate additional revenue, especially as more tech giants may set up minimal local offices to avoid the tax.
What the law covers
The Digital Presence Proceeds Act targets automated digital services such as streaming, cloud computing, software, telemedicine, and e-learning—areas where global firms earn significant profits from Pakistani users without paying local taxes.
But with Google now exempt, questions remain over how effectively Pakistan can tax foreign digital firms while balancing the need to attract investment in its growing tech sector.
