Pakistan has formally confirmed that Google will not be subject to the newly introduced 5% digital tax under the Digital Presence Proceeds Act 2025. The assurance was provided by FBR to Kyle Gardner, Google’s South Asia government affairs representative, during a recent engagement. This decision has sparked debate over the implementation and efficacy of the law, which was passed just last month with the aim of taxing international companies providing digital services in Pakistan without any physical presence.
The Digital Presence Proceeds Act was enacted in June to improve revenue collection from global digital service providers operating in Pakistan through online platforms. It specifically targets foreign companies delivering services such as streaming, e-learning, cloud computing, software, and other automated services without being registered locally. However, FBR has clarified that the law does not apply to companies that maintain a registered office or branch within Pakistan. Since Google has an officially registered branch office in the country, its operations are treated as domestic and therefore not subject to the 5% digital tax.
In a formal communication, FBR stated that Google’s structure qualifies it as a tax resident under existing tax law. Consequently, services offered through its Pakistani branch, including advertising, search, cloud platforms, and media services, are exempt from the provisions of the new tax. The income generated through these operations will instead be governed by existing income tax provisions. Google, previously taxed at a rate of 10% under Section 152 of the Income Tax Ordinance, has recently faced a rate increase to 15%. However, under the updated interpretation of the law, the government has indicated that a 5% rate may be applicable for certain offshore-managed operations, creating the possibility of a lower tax burden.
FBR also confirmed that double taxation would not occur. The digital tax and existing withholding tax under Section 152 will not be simultaneously applied to the same income. This reassurance has added clarity to a law that had initially caused uncertainty among foreign companies.
An additional incentive was also presented to Google. If the company relocates its registered office to one of Pakistan’s Special Technology Zones, it would become eligible for a full income tax exemption until 2035. This exemption is provided under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, and aims to encourage global firms to invest in local innovation clusters.
Despite the clarification, the exemption for Google has raised concerns among critics who argue that such relief could undermine the broader objectives of the Digital Presence Proceeds Act. While the law was intended to level the tax playing field between local and foreign tech firms, the latest developments may limit its impact on high-revenue digital service providers already operating through local branches.
