ISLAMABAD:
In a strategic move, Pakistan has withdrawn the 5% digital tax on foreign tech companies. This step aims to boost progress on the Pakistan-US trade agreement.
The Federal Board of Revenue (FBR) announced the exemption on Wednesday. It removes a key obstacle raised by the US administration during trade talks.
The tax was introduced in the 2025–26 federal budget. It was part of the Digital Presence Proceeds Tax Act. The tax applied to digitally ordered goods and services supplied from outside Pakistan. Now, following pressure from the US, the government has waived the tax for all foreign vendors, not just American firms.
“The Digital Presence Proceeds Tax shall not apply to digitally ordered goods and services supplied from outside Pakistan,” stated the official FBR notification.
The decision was announced on the same day. Finance Minister Muhammad Aurangzeb met US officials in Washington. The meeting aimed to advance the trade talks. It was the second visit by a senior Pakistani delegation in two weeks. It shows Islamabad’s urgency to finalize the trade deal. The talks include both the energy agreement and the Pakistan Oil Deal.
Sources confirm that the issue came up in earlier talks. US Secretary of Commerce Howard Lutnick raised concerns over the 5% tax. Washington saw it as a barrier for tech giants like Amazon, Google, and Meta in Pakistan.
The tax waiver may cost Pakistan billions in revenue. However, it opens the door to stronger economic cooperation. It also encourages digital investment and supports progress on a bilateral trade agreement.
The government had earlier justified the tax as a way to target cross-border e-commerce that often escapes taxation due to lack of permanent establishment. However, this step is being seen as a calculated move to prioritize long-term trade benefits over short-term tax gains.
Pakistan Clears Major Hurdle by Clarifying Digital Tax Scope for Global Tech Giants
In a move to smoothen ongoing trade negotiations with the United States, Pakistan clears another major hurdle by clarifying the scope of its Digital Presence Proceeds Tax Act. According to tax authorities, the newly introduced 5% digital tax is not aimed at global tech platforms like Google, which have a limited physical presence but a significant digital footprint in Pakistan.
The National Assembly Standing Committee on Finance was briefed that foreign vendors, such as Temu, advertising in Pakistan through platforms like Google Ads, would be taxed under Pakistan’s digital taxing rights framework. However, payment intermediaries, including banks and financial institutions, are required to collect and report digital tax on payments made to foreign e-commerce platforms.
As per a report by The Express Tribune dated July 19, the Pakistan government has assured Google that it will be exempted from the full 5% digital tax, and some of its revenue may even be taxed at two-thirds reduced rates.
The Digital Presence Proceeds Tax Act, passed in June 2025, was designed to increase tax collection from offshore digital businesses that generate revenue in Pakistan without having a registered office or permanent establishment in the country.
In recent talks, Pakistani tax officials clearly stated that:
“Google is not the target of the Digital Presence Proceeds Tax Act.”
Instead, the legislation aims to bring untaxed digital earnings under the net, especially in cases where companies operate without physical presence but maintain a dominant digital presence in the Pakistani market. Click for more info
Pakistan Expands Digital Tax Relief for Global Tech Giants, Including Google and Meta
Google holds a significant digital presence in Pakistan, offering a wide range of services including online advertising, search engine tools, cloud computing, communication platforms, and digital entertainment. It is currently the largest contributor to Pakistan’s digital services tax.
Now, under the newly introduced tax exemption policy, tech giants such as Meta, Amazon, Microsoft, and Netflix will also benefit. The decision follows growing concerns from the tech industry after the enactment of the Digital Presence Proceeds Tax Act, 2025 — a law that had caused considerable unrest, especially among YouTube creators and digital entrepreneurs in Pakistan.
Initially, Pakistan introduced the Digital Presence Proceeds Act to bring cross-border digital services under its tax net. The law targeted services delivered over the internet or electronic networks with minimal or no human interaction. This includes:
- Music, video, and audio streaming platforms
- Cloud computing and online software applications
- E-learning and telemedicine services
- Digital banking and online design services
- Consultancy, accounting, and research reports in digital formats
The goal was to establish fair taxation for global digital services operating in Pakistan without any physical presence. However, after trade talks with the United States and feedback from stakeholders, the government decided to ease the policy to avoid hindering foreign investment and digital growth in Pakistan. For more latest news click here
