Pakistan Grants Major Tax Concessions to Google for Digital Operations
FBR Clarifies Google’s Tax Status After Digital Tax Law Passed
The Federal Board of Revenue (FBR) has officially assured Google that the newly enacted 5% digital tax will not apply to its operations in Pakistan. This announcement follows a formal communication to Kyle Gardner, Google’s South Asia Public Policy representative, confirming the company’s exemption under the Digital Presence Proceeds Act 2025.
The law, introduced last month, aimed to increase tax revenue from foreign digital platforms operating in Pakistan without a local presence. However, Google being registered as a local branch office qualifies as a tax resident and is thus excluded from the new levy.
Exemption Sparks Concerns Over Policy Effectiveness
The move has triggered a wave of criticism from tax analysts and digital economy experts, who argue the government may have rushed the implementation without fully analyzing its long term impact. Critics claim the exemption undermines the core intent of the law, which was to widen Pakistan’s tax net by targeting cross-border digital revenue streams.
According to sources, the exemption could limit the law’s effectiveness in taxing global tech companies like Meta, Amazon, Netflix, and others that do not maintain offices in Pakistan.
Google Still Pays Higher Tax But Has New Incentives
While previously taxed at 10% under Section 152, Google’s rate was recently raised to 15%. However, under the current setup, FBR now allows the tech giant to pay as low as 5% income tax due to its local registration.
Furthermore, Pakistan’s government is offering Google full income tax exemption if it shifts its registered office into a Special Technology Zone (STZ). Under Clause 123EA of the Income Tax Ordinance, tech companies operating in STZs are exempt from income tax until 2035, making it an attractive relocation option.
Google Leads in Pakistan’s Digital Tax Contributions
Among major digital players in Pakistan, Google contributes the most in terms of service taxes. Services including online ads, cloud platforms, entertainment tools, and search solutions form a significant part of Google’s revenue stream from Pakistan.
In contrast, companies like Meta, Netflix, Amazon, and Microsoft contribute a relatively smaller share of the over Rs. 1 billion collected annually under digital tax regulations, according to officials.
The Digital Presence Proceeds Act, passed in June 2025, was intended to tax automated online services delivered by foreign companies such as streaming, e learning, telemedicine, cloud computing, and software as a service (SaaS) platforms.
While the law still applies to non resident entities operating without registration in Pakistan, Google’s exemption now raises doubts about whether the Act will truly capture the revenue it was designed to generate.
