The federal government is introducing a new taxation framework under the “Digital Presence” Proceeds Levy Act, 2025, targeting foreign and local digital service providers earning revenue from Pakistani consumers. The move brings platforms such as Amazon, Facebook, Google, and Temu, as well as domestic marketplaces like Daraz and Pak Wheels, under a 5 percent levy for goods and services delivered through digital channels.
According to officials familiar with the development, all financial institutions, payment processors, and banks engaged in remitting payments to foreign vendors will be required to deduct the 5 percent levy at the source. These entities must also submit quarterly reports to the Federal Board of Revenue (FBR), detailing payment data and withholding activities. In cases of non-compliance, payment gateways and banks will be obligated to halt remittances to the concerned vendors.
The levy applies to all vendors with a significant digital presence in Pakistan, even if they lack a physical office or legal entity within the country. The Act defines “significant digital presence” by factors such as revenue exceeding Rs. 1 million annually from Pakistani users, data collection from local users, pricing in local currency, local delivery or logistics services, after-sales support in Pakistan, or marketing activities specifically aimed at Pakistani consumers.
Digital services covered under the legislation include streaming platforms, cloud computing, online education, consulting, architectural design, banking, and software-as-a-service (SaaS). E-commerce activities, both physical and digital, also fall within the Act’s scope, including platforms that facilitate transactions without taking ownership of the goods or services involved.
The Revenue Division aims to expand the tax net to include digital transactions conducted across borders, especially where goods or services are consumed within Pakistan but paid for via offshore channels. This measure is part of broader efforts to ensure compliance from companies benefiting from Pakistan’s digital consumer base without contributing to the local tax system.
A penalty of Rs. 1 million per instance of non-compliance has been established for failure to file or pay the required levy. Overdue payments will incur an additional surcharge of 3 percent above the Karachi Interbank Offered Rate (KIBOR), with recovery processes aligned with the Income Tax Ordinance, 2001.
Companies affected by any tax determination under this Act will have the right to appeal to the Commissioner of Inland Revenue (Appeals), following standard procedures under Pakistan’s income tax framework.
While the government has clarified most aspects of the new levy, there remains uncertainty around the regulation of transactions made via credit cards for streaming, cloud, or software services. Further clarification is expected as the implementation phase begins.
This legislation marks a substantial shift in Pakistan’s approach to regulating digital commerce and enforcing domestic tax laws across both international and local digital vendors operating within its jurisdiction.
