Pakistan exempts Google from new digital tax, confirms resident status

The FBR has clarified that the Digital Presence Proceeds Tax does not apply to Google because it has maintained a branch office in Pakistan and is considered a tax resident under domestic tax laws. 

The Federal Board of Revenue (FBR) of Pakistan has formally informed Google that it will be exempt from the newly introduced Digital Presence Proceeds Tax (DPPT) introduced under the Finance Act 2025.

The DPPT, levied at a rate of 5%, targets goods and services offered by offshore vendors with a significant digital footprint in Pakistan but without a registered or physical presence in the country. The tax is part of a broader initiative under the Digital Presence Proceeds Act, enacted in June, aimed at capturing revenue from multinational digital companies that have previously operated outside the domestic tax net.

The FBR has clarified that the legislation does not apply to Google, which has maintained a branch office in Pakistan and is considered a tax resident under domestic tax laws. In a letter addressed electronically to Kyle Gardner, Google’s representative for government affairs in South Asia, the FBR assured the tech giant that it is not the target of the DPPT regime.

Previously, Google was taxed at 10% under Section 152 of the Income Tax Ordinance—a rate recently revised upwards to 15%. However, FBR officials now suggest that, due to its local registration and tax residency, Google could pay a lower effective rate of 5% under the digital tax framework if applicable to certain transactions.

The FBR further clarified that this reduced 5% rate would only apply to specific Google operations managed from outside Pakistan, and even then, only if such services fall within the scope of the new digital tax. Crucially, authorities assured the company that there would be no overlap between the DPPT and Section 152, preventing the risk of double taxation.

Google, which has a strong operational footprint in the country, provides services across digital advertising, cloud computing, communications, and entertainment. It is also the single largest contributor to Pakistan’s digital services tax. In contrast, tech giants such as Meta, Amazon, Microsoft, and Netflix are reportedly contributing far less, with total tax collections from foreign digital companies amounting to just over PKR 1 billion.

Earlier, FBR enacted the Finance Act 2025 on 27 June 2025, introducing major tax reforms targeting digital transactions, income, property, and enforcement, effective from 1 July 2025.