FBR has announced that the Digital Presence Proceeds Tax, introduced earlier this year on foreign goods and services ordered online, will not apply to transactions conducted from outside Pakistan. The decision, which comes into effect retroactively from July 1, 2025, marks a significant shift in how digital commerce involving international vendors will be treated under local tax laws. A notification issued by FBR stated that the tax will not be applicable on goods and services digitally ordered from outside the country that are otherwise taxable under the Digital Presence Proceeds Tax Act, 2025.
The tax had been part of a broader effort by the government to regulate and generate revenue from the digital economy. Under the original provisions of the law, foreign vendors with a significant digital presence in Pakistan were to be taxed on sales made to local customers. The legislation particularly impacted international marketplaces such as Amazon, AliExpress, and Temu, where Pakistani consumers frequently shop for goods. It proposed a five per cent tax on the transaction amount, which was to be collected by local banks, financial institutions, or payment processors involved in facilitating payments.
This tax, however, drew swift criticism from international stakeholders. The US Chamber of Commerce’s US-Pakistan Business Council addressed an open letter to Finance Minister Muhammad Aurangzeb on June 25, outlining concerns about the implications of the tax. The council described the legislation as discriminatory against US companies and warned of its inconsistency with international taxation principles. The letter further highlighted that similar digital services taxes in countries like France and the UK had faced strong opposition from the US due to their perceived adverse effects on American businesses.
The council argued that the financial burden of such taxes would ultimately fall on Pakistani consumers, increasing the cost of goods and services purchased online. It also warned that the policy could discourage foreign investment and hinder the growth of local businesses that rely on international digital platforms and services. Stressing the importance of a stable and predictable business environment, the council urged Pakistani policymakers to reconsider the act in favor of long-term trade and investment interests.
Information Technology Minister Shaza Fatima Khawaja confirmed the exemption in a post on X, stating that the government had removed the tax on international e-commerce firms. “Pakistan is open for business,” she wrote, signaling a more favorable approach toward global digital trade.
The policy reversal follows the announcement of a new trade agreement between Pakistan and the US, expected to reduce tariffs, although details have yet to be released. As the digital economy continues to evolve, this move reflects a recalibration of the government’s regulatory approach to strike a balance between revenue generation and sustaining foreign trade and consumer access.
