Pakistan has assured Google that it will be exempt from the newly introduced 5% digital tax under the Digital Presence Proceeds Act 2025. The Federal Board of Revenue communicated this exemption directly to the company, confirming that parts of Google’s income will also be subject to significantly reduced tax rates. The development has prompted debate over the scope and execution of the legislation, which was introduced in June to improve tax collection from offshore digital firms operating in Pakistan without a formal presence.
Authorities informed Google that the legislation is not intended to target companies with an established legal and physical presence in Pakistan. The assurance, sent electronically to Kyle Gardner, Google’s representative for government affairs in South Asia, stated that the act is aimed at entities with significant digital operations in the country but no official branch or registration.
Google maintains a strong business presence in Pakistan through its registered branch office and offers services including online advertising, search engines, cloud computing, communications, and entertainment. It is currently the largest contributor to Pakistan’s digital service tax revenues. In contrast, companies such as Meta, Amazon, Microsoft, and Netflix account for a much smaller share of the over Rs1 billion collected annually from global tech firms, according to FBR sources.
Officials clarified that since Google is considered a tax resident under Pakistan’s tax laws, its operations fall under the exemption clauses in the Digital Presence Proceeds Act. This includes transactions involving digitally ordered goods and services where the company maintains a branch office in Pakistan. As such, the 5% tax does not apply to Google, and its operations are not subject to double taxation.
Previously, Google was taxed at a rate of 10% under Section 152 of the Income Tax Ordinance, which was later increased to 15%. Under the clarified framework, the government has offered a path for the company to instead pay a reduced rate of 5%, even for operations partially conducted from outside Pakistan. Officials emphasized that this shift ensures tax parity and simplifies compliance for the company under both the new act and existing income tax provisions.
Additionally, the government has provided an incentive for Google to relocate its local office to a Special Technology Zone. Under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, companies operating in these zones are fully exempt from income tax on profits and gains until 2035.
The Digital Presence Proceeds Act was introduced to tax services delivered over the internet or electronic networks that involve minimal or no human interaction. These services include cloud computing, music and video streaming, software, telemedicine, e-learning, online financial services, architecture, consultancy, research, and digital accounting.
FBR has maintained that Google’s current setup qualifies for relief across multiple areas of the law and that the applicable provisions safeguard the company from being taxed under overlapping statutes.
