Google Exempt from 5% Digital Tax, Confirms Pakistan’s FBR
The Federal Board of Revenue (FBR) has assured Google that it will not be subject to the newly introduced 5% digital tax under Pakistan’s Digital Presence Proceeds Act 2025. This assurance was communicated to Kyle Gardner, Google’s South Asia government affairs representative, and has since sparked debate about the scope and impact of the new legislation.
Introduced in June, the Digital Presence Proceeds Act aims to increase tax collection from foreign digital firms operating in Pakistan without a registered local presence. However, Google, which maintains a registered branch office in the country, is not considered a target under this law.
According to FBR officials, the new law applies only to companies lacking a physical or registered office in Pakistan. Since Google operates locally, it qualifies as a tax resident and is therefore exempt from the 5% digital tax.
Google remains the largest contributor to Pakistan’s digital services tax, offering services including online advertising, cloud computing, search, and digital content. Other tech giants like Meta, Amazon, Microsoft, and Netflix contribute significantly less to the more than Rs. 1 billion in annual tax revenue from international tech firms.
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Previously, Google was taxed at 10% under Section 152 of the Income Tax Ordinance—a rate that was recently raised to 15%. However, the government has now indicated that Google could be taxed at just 5% if some operations are managed from abroad. Additionally, the FBR has reassured Google that there will be no double taxation, clarifying that the provisions under Section 152 and the Digital Presence Proceeds Act cannot apply simultaneously to a single transaction.
As an added incentive, the government has offered Google full income tax exemption if it relocates its operations to a Special Technology Zone (STZ). Under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, companies operating within STZs are exempt from income tax until 2035.
The Digital Presence Proceeds Act was designed to tax automated digital services provided over the internet—including cloud services, streaming, e-learning, telemedicine, software, and other online solutions. However, the exemption granted to Google has raised concerns over whether the law will effectively meet its original objectives.
