Pakistan’s Federal Board of Revenue (FBR) has assured Google that the company qualifies for exemption from the new 5% digital tax under the Digital Presence Proceeds Act 2025.
The decision regarding the digital tax exemption is based on Google’s registered branch office in the country, which classifies it as a tax resident. The Federal Board of Revenue (FBR) communicated electronically with Kyle Gardner, Google’s representative for South Asia government affairs, emphasising that the law targets entities with a significant digital presence but no physical or registered operations in Pakistan. “Google is not the target of the Digital Presence Proceeds Tax Act,” stated FBR.
For operations conducted outside of Pakistan, the applicable tax rate has been reduced from 15% to 5% withholding tax, thereby preventing double taxation. Additionally, the FBR has offered a full income tax exemption if Google relocates its branch to a Special Technology Zone (STZ). In these zones, profits remain tax-free until 2035, as outlined in Clause 123EA of the Income Tax Ordinance, 2001.
Read: Pakistan Retail’s Association Criticizes Harsh Tax Measures in Finance Act 2025
The Digital Presence Proceeds Act, enacted in June 2025, aims to tax offshore companies that generate revenue from digital services, including online advertising, cloud computing, and streaming. It applies to automated services with minimal human involvement, such as music streaming, e-learning, and telemedicine. Google, a major contributor to Pakistan’s digital tax revenue, provides services in advertising, search, cloud, communication, and entertainment. Other tech giants, such as Meta, Amazon, Microsoft, and Netflix, pay minimal taxes, totalling over Rs 1 billion annually.
This assurance addresses Google’s concerns but raises questions about the law’s effectiveness in broadening the tax base. Critics argue the government overlooked implications, potentially reducing revenue from foreign firms.
