FBR gives Google a Break: No 5% Tax on digital revenue
ISLAMABAD: The Government of Pakistan has assured Google exemption from the newly introduced 5% digital tax, even after enacting the Digital Presence Proceeds Act 2025.
The Federal Board of Revenue (FBR) officially conveyed this assurance to Kyle Gardner, Google’s South Asia government affairs representative.
The government passed the Digital Presence Proceeds Act in June 2025 to boost tax collection from global tech companies earning digital revenue in Pakistan without maintaining a physical presence. However, after introducing the law, officials clarified that it applies only to companies without registered local offices.
Because Google operates through a registered branch in Pakistan, the government excluded it from the new 5% digital tax.
“Since you are operating through a registered branch, your operations fall squarely within this exemption,” the FBR stated in its communication to Google.
Why Google Is Exempt from Pakistan’s New Digital Tax:
Google provides services such as advertising, cloud computing, entertainment, and search, and remains the largest contributor to Pakistan’s digital services tax. In contrast, other tech giants like Meta, Amazon, Microsoft, and Netflix reportedly contribute significantly less to the over Rs. 1 billion collected annually from foreign digital firms.
Previously, the government taxed Google at a 10% withholding rate under Section 152 of the Income Tax Ordinance, recently increased to 15%. However, the government has now confirmed that Google will only pay 5% on certain transactions.
Under the new law, the government will apply the 5% tax rate to any Google services managed from outside Pakistan, replacing the earlier expected 15% rate.
The FBR also addressed concerns about double taxation and clarified that it will not apply both Section 152 and the Digital Presence Tax to the same transaction.
“The digital services tax provisions of the income tax law do not apply to tax residents of Pakistan,” the FBR emphasized.
Special Tax Incentive in Technology Zones:
To retain and attract tech investment, the government has offered Google a full income tax exemption if it relocates its branch to a Special Technology Zone (STZ). Under Clause 123EA of the Income Tax Ordinance, 2001, companies operating in STZs enjoy income tax exemptions until 2035.
Although this exemption provides clarity for Google, it has sparked debate. Critics argue that the Act may fall short if large digital firms with local branches continue to remain exempt.
The government introduced the Act to tax automated digital services delivered over the internet—such as streaming, software, cloud, e-learning, and telemedicine. However, the current exemption could allow other companies to avoid taxation by establishing only a minimal local presence.
