FBR Exempts Foreign‑Supplied Digital Goods from 5% “Digital Presence” Tax

In a move that surprised many, the Federal Board of Revenue (FBR) has suspended the 5% Digital Presence Proceeds Tax on foreign-supplied digital goods and services, effective July 1, 2025.

Through notification S.R.O. 1366(I)/2025, the FBR declared that “digitally ordered goods and services supplied from outside Pakistan” will no longer attract the 5 percent levy imposed under the Digital Presence Proceeds Tax Act, 2025.

Background of the Levy

The tax was introduced in the June federal budget to target foreign e-commerce vendors and tech platforms; specifically, any entity with a “significant digital presence” in Pakistan that lacks a physical office. The policy mirrored similar digital service taxes (DSTs) in Europe, which aim to capture a share of revenue earned from a country’s users by offshore companies.

Under the now-suspended scheme, banks and payment processors would have withheld 5% on cross-border payments, while customs officials were to block the delivery of parcels lacking proof of tax payment.

Key Exemption Details

S.R.O. 1366(I)/2025 explicitly states that, with effect from July 1, 2025, no digitally supplied goods or services imported into Pakistan shall be subject to the Digital Presence Proceeds Tax Act, even if they would otherwise be “chargeable to tax” under its provisions. In practical terms, the exemption covers:

• Subscriptions to international streaming and gaming platforms
• Cloud‑computing and software‑as‑a‑service (SaaS) offerings
• Physical and digital goods ordered through overseas e‑commerce sites

This reversal comes as a relief to small-scale startups and digital entrepreneurs, who had warned that the 5% levy would inflate their operational costs and stifle growth. Consumers had also faced the prospect of steeper prices for everything from online courses to imported electronics.

“Removing this tax keeps Pakistan competitive,” said Mr. Usman, Founder of a Lahore‑based cloud‑services provider. “We need affordable access to global platforms if we’re to scale our businesses and create jobs.”

What’s Next?

With the suspension now active since July 1, foreign-supplied digital services will continue to be tax-free, pending any new legislation. In the months leading up to this change, the FBR had signaled its intention to:

• Enhance real-time monitoring of cross-border payments
• Engage with local and international business groups

As Pakistan’s digital economy accelerates, the core challenge for authorities remains: bolstering revenue while preserving affordability and market access.