Pakistan has confirmed that Google will not face the newly introduced 5% digital tax. The Federal Board of Revenue (FBR) clarified the matter in a recent meeting with Kyle Gardner, Google’s South Asia government affairs representative.
The Digital Presence Proceeds Act 2025, which came into effect in June, aims to tax global companies that earn from Pakistan without a physical or legal presence. However, Google operates through a registered branch in the country.
Because of this local presence, the FBR stated that the new tax doesn’t apply to Google. “Your operations fall squarely within this exemption,” the FBR told the company in an official letter.
The FBR further explained that Google qualifies as a tax resident in Pakistan. This status exempts the tech giant from both the 5% digital tax and other digital service tax provisions under existing income tax laws.
Google offers various services in Pakistan, including cloud computing, advertising, entertainment, and search. It also contributes more to digital taxes than Meta, Microsoft, Amazon, or Netflix.
Previously, Google paid a 10% withholding tax under Section 152 of the Income Tax Ordinance. This rate later increased to 15%. But now, the government has indicated that some parts of Google’s income may qualify for just 5% tax.
This lower rate would apply to operations run from outside Pakistan. If handled locally, the exemption remains valid. The FBR also assured Google that it won’t face double taxation. Both the digital tax and Section 152 cannot apply to the same transaction.
To further encourage local operations, the government made another offer. If Google moves its local branch into a Special Technology Zone (STZ), it could receive a full income tax exemption. Under Clause 123EA of the Second Schedule of the Income Tax Ordinance 2001, companies in STZs remain tax-free until 2035.
This move aligns with Pakistan’s broader efforts to attract tech investment and expand its digital economy. However, it has raised concerns among tax policy experts and local entrepreneurs.
Critics argue that the new law may not meet its original goal. They say exemptions so soon after its passage could weaken its effectiveness. The law was intended to bring in revenue from international companies that earn here without any registration or office.
Still, the government insists that only non-resident digital businesses are the law’s target. Google’s exemption, they claim, reflects compliance with legal standards—not favoritism.
As Pakistan aims to strengthen its tech ecosystem, decisions like these will shape future foreign investments. Whether the country can balance investor incentives with fair taxation remains a key question.
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