Pakistan Announces Tax Relief for Google

Pakistan has assured Google that it will not be subject to the newly introduced 5% digital tax.

This assurance, communicated by the Federal Board of Revenue (FBR) to Google’s South Asia government affairs representative, Kyle Gardner, has sparked debate over the effectiveness of the recently enacted Digital Presence Proceeds Act 2025, Tribune has reported.

Critics say the government may not have fully considered the consequences before passing the law last month.

The Digital Presence Proceeds Act, introduced in June, was designed to boost tax collection from international companies with a substantial digital footprint in Pakistan but no physical or registered presence.

However, FBR officials clarified to Google that the law targets only those firms without a local office, and that Google, with its registered branch in Pakistan, is not the intended target.

Google, which offers a range of services in Pakistan including online advertising, search, cloud computing, and entertainment, is the largest contributor to the country’s digital service tax. In contrast, companies like Meta, Amazon, Microsoft, and Netflix contribute far less to the over Rs. 1 billion collected annually from tech giants, Express Tribune reported.

The FBR explained that because Google operates through a registered branch office, it qualifies as a tax resident under Pakistani law and is therefore exempt from the 5% digital tax. The new law also exempts payments for digital goods and services that are connected to a foreign company’s branch office in Pakistan.

“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,” the FBR told Google in its official communication.

Previously, Google was taxed at 10% under Section 152 of the Income Tax Ordinance, a rate that was recently increased to 15%. However, the government has now indicated that Google could pay as little as 5% income tax instead of the higher rate.

Officials further clarified that if any of Google’s operations are managed from outside Pakistan, the applicable tax rate under the new digital laws would be 5%, not the 15% Google initially expected.

The FBR also assured Google that it would not face double taxation, as the Digital Presence Proceeds Tax and Section 152 cannot be applied to the same transaction.

In a further incentive, the government has offered Google a complete income tax exemption if it relocates its local branch to a Special Technology Zone (STZ). Under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, companies operating in these zones are exempt from income tax until 2035.

The Digital Presence Proceeds Act was intended to tax automated digital services delivered over the internet, such as streaming, cloud computing, software, telemedicine, e-learning, and other online services. However, the recent assurances to Google have raised questions about whether the law will achieve its intended purpose.