ISLAMABAD: The Government of Pakistan has assured Google that it will not be subject to the newly introduced 5% digital tax, despite the recent enactment of the Digital Presence Proceeds Act 2025.
This assurance was officially conveyed by the Federal Board of Revenue (FBR) to Kyle Gardner, Google’s South Asia government affairs representative.
The Digital Presence Proceeds Act was passed in June 2025. It was introduced to increase tax collection from global tech companies generating digital revenue in Pakistan without having a physical presence. However, following its introduction, the government clarified that the law targets only those companies without registered local offices.
Since Google operates through a registered branch in Pakistan, it falls outside the scope of 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.
Google, which provides services including advertising, cloud, entertainment, and search, remains Pakistan’s largest contributor to the digital services tax. 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, Google was subject to a 10% withholding tax under Section 152 of the Income Tax Ordinance, which was recently hiked to 15%. However, the government has now confirmed that Google may only pay 5% on certain transactions.
If any Google services are managed from outside Pakistan, the 5% tax rate will apply. This is under the new law and replaces the earlier expected 15% rate.
The FBR also addressed concerns about double taxation. It clarified that Section 152 and the Digital Presence Tax will not apply 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.
In a further move to retain and attract tech investment, the government has offered full income tax exemption to Google if it relocates its branch to a Special Technology Zone (STZ). Companies in STZs enjoy income tax exemption until 2035, under Clause 123EA of the Income Tax Ordinance, 2001.
While the exemption for Google offers clarity, it has also sparked debate. Critics warn the Act may fall short if big digital firms with local branches remain exempt.
The Act was intended to tax automated digital services delivered over the internet, including streaming, software, cloud, e-learning, and telemedicine. The current exemption may create loopholes for other companies to avoid taxation by setting up a minimal local presence.