The Federal Board of Revenue (FBR) has clarified that its recently introduced Digital Presence Proceeds Tax (DPPT) will not apply to goods and services purchased online from outside Pakistan. The exemption, effective from July 1, 2025, was formally announced via S.R.O. No. 1366(I)/2025, and aims to ease the tax burden on international digital platforms and reduce the risk of double taxation.
What Is the DPPT?
Introduced in the 2025–26 federal budget, the Digital Presence Proceeds Tax Act, 2025 targets foreign digital companies generating revenue from Pakistani users—especially those operating without a local office or physical presence in the country.
The law imposes a 5% withholding tax—also known as a digital transactions levy—on payments made to both domestic and international digital service providers. Notable platforms potentially affected include Amazon, Google, Facebook, Netflix, Daraz, Temu, and PakWheels.
Under the law, banks and payment processors are responsible for deducting the 5% tax at the point of transaction and remitting it to the FBR, along with quarterly reporting of these transactions.
Foreign Relief, Local Burden
While the exemption provides much-needed clarity for foreign e-commerce and digital platforms, it has triggered concerns among local startups and digital businesses, which remain subject to the 5% tax.
The uneven application of the levy means that foreign platforms supplying from outside Pakistan are effectively 5% cheaper than their local counterparts. As a result, Pakistani edtech, fintech, e-commerce, and digital subscription businesses now face a pricing disadvantage, compliance burdens, and potentially shrinking market share.
This policy could discourage domestic digital innovation, making it harder for local entrepreneurs to attract investment, scale operations, and compete with global tech giants.
Startups will still be required to:
- Deduct and deposit the 5% tax on each transaction.
- Submit quarterly reports to FBR.
- Bear the administrative and financial burden of compliance.
What’s Next?
The FBR has stated that further guidelines are forthcoming, including definitions of:
- What constitutes a “significant digital presence”.
- Detailed reporting requirements.
- Clarification on the scope of entities covered under the DPPT.
However, a pressing question remains:
If relief can be extended to foreign companies, why not provide the same support to local startups struggling to thrive in the same ecosystem?
The risk, stakeholders warn, is that Pakistan may evolve into a purely digital consumer economy, heavily reliant on international players while stifling the growth of indigenous innovation.
