Google Avoids Digital Tax Under New Pakistani Law

Islamabad — Google has secured an exemption from Pakistan’s newly introduced Digital Presence Proceeds Tax, a move that reduces the tech firm’s tax burden and raises concerns about the law’s scope and fairness. The Federal Board of Revenue (FBR) confirmed to the company that the new 5% digital tax will not apply to firms with a physical presence in Pakistan, like Google.

New Tax, Limited Scope

The Digital Presence Proceeds Act, enacted in June 2025, aims to tax offshore digital firms generating revenue from Pakistani users without having a local presence. However, the FBR clarified that the law excludes companies registered in Pakistan and operating through local branches.

In an official communication sent to Google’s South Asia representative, Kyle Gardner, tax authorities stated: “Google is not the target of the Digital Presence Proceeds Tax Act.” The law, they explained, focuses on digital service providers with no physical or legal footprint in the country.

Google’s Advantage

Google runs a registered branch office in Pakistan. This legal status qualifies the company as a tax resident, thereby shielding it from the 5% tax rate introduced by the new law. Instead, Google will continue paying income tax under older provisions, with possibilities for further reductions.

Before the budget, Google paid 10% tax under Section 152 of the Income Tax Ordinance. Although this was raised to 15% in the new budget, the FBR has offered the tech giant a significantly reduced 5% rate under the updated regulations. This development has further eased Google’s tax liabilities.

Full Exemption Option

In an even more generous offer, the government has told Google that it could become fully exempt from income tax by shifting its local branch office to a Special Technology Zone (STZ). According to Clause 123EA of the Income Tax Ordinance 2001, any profits earned by registered STZ enterprises will remain tax-free until 2035.

This offer demonstrates Pakistan’s continued effort to attract global tech players into dedicated innovation zones, though it may also lead to questions about fairness and lost tax revenue.

Read: Netflix Embraces Generative AI to Cut Production Costs

Clarity for Digital Economy

The FBR reassured Google that the law would not apply to digitally delivered services where the company has a local office and where services are provided from within the country. Services like cloud computing, video streaming, and digital advertising — which form the core of local business — will remain within this exemption framework.

FBR’s email clarified: “Since you are operating through a registered branch, your operations fall squarely within this exemption.” It also mentioned that if tax is levied under the new act, it will not be duplicated under Section 152 — eliminating double taxation risks.

Broader Tax Goals at Risk?

The exemption for Google — the largest contributor to Pakistan’s digital service tax pool — raises concerns about the effectiveness of the Digital Presence Proceeds Tax. In contrast to other digital giants like Meta, Amazon, Microsoft, and Netflix contribute significantly less to Pakistan’s over Rs1 billion in digital tax collection.

Critics argue that while the law was meant to enhance revenue from foreign digital services, the exemptions for major players like Google may limit its impact.

Public Reaction and Misunderstandings

The law sparked public concern, especially among Pakistani YouTube users and content creators. Many believed the new tax would directly affect monetization of platforms like YouTube in Pakistan. However, the FBR has clarified that these fears are unfounded, given Google’s local presence and the company’s current tax arrangements.

Background: What the Law Covers

The Presence Proceeds Act applies to automated digital services provided over the internet or electronic networks. These include music, video, and streaming platforms, e-learning, online consultancy, cloud services, digital architecture, and telemedicine. The law targets non-resident firms that deliver such services with little or no human intervention and without operating a local branch.

Still, with escaping its net — and potentially paying even less in taxes — the law’s real impact remains under scrutiny. As other tech giants review their tax exposure, questions persist about whether the government can ensure fair and consistent digital taxation.