Google has received assurances from Pakistan that it will not be impacted by the recently implemented 5% digital tax and will be granted tax relief.
According to Tribune, this promise, which was given by the Federal Board of Revenue (FBR) to Kyle Gardner, Google’s government affairs representative for South Asia, has raised questions about the efficacy of the newly passed Digital Presence Proceeds Act 2025.
Critics claim that before enacting the law last month, the government might not have given the ramifications enough thought.
In order to increase tax collection from foreign corporations who have a significant online presence in Pakistan but no physical or registered presence, the Digital Presence Proceeds Act was introduced in June.
However, Google was informed by FBR authorities that Google, which has a registered branch in Pakistan, is not the intended target of the law, which exclusively targets businesses without a local office.
The biggest contributor to Pakistan’s digital service tax is Google, which provides a variety of services there, such as cloud computing, entertainment, online advertising, and search. However, according to Express Tribune, businesses like Meta, Amazon, Microsoft, and Netflix make up a far smaller portion of the more than Rs. 1 billion that is received from tech giants each year.
According to the FBR, Google is free from the 5% digital tax because it functions through a registered branch office, making it a tax resident under Pakistani law. Payments for digital goods and services linked to a foreign company’s branch office in Pakistan are likewise exempt under the new rule.
The FBR told Google in its official communication that:
“Since you are operating through a registered branch, your operations fall squarely within this exemption. Similarly, the digital services tax provisions of the income tax law do not apply to tax residents of Pakistan,” .
Google was previously subject to 10% tax under Section 152 of the Income Tax Ordinance; however, this rate was recently raised to 15%. Instead of paying the higher rate of income tax, the government has now suggested that Google might pay as little as 5%.
Officials also explained that, instead of the 15% Google had originally anticipated, the appropriate tax rate under the new digital legislation would be 5% if any of Google’s operations are run from outside Pakistan.
Because Section 152 and the Digital Presence Proceeds Tax cannot be applied to the same transaction, the FBR further guaranteed Google that it would not be subject to double taxation and promised tax relief.
The government has also provided Google with a full exemption from income taxes in exchange for moving its local office to a Special Technology Zone (STZ). Companies that operate in these zones are free from income tax until 2035 under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001.
The goal of the Digital Presence Proceeds Act was to impose taxes on automated digital services that are provided online, including software, cloud computing, telemedicine, streaming, e-learning, and other online services. The latest guarantees given to Google, however, have sparked concerns about whether the law would accomplish its goals.
