Pakistan Grants Tax Relief to Google Under New Digital Economy Law

ISLAMABAD – July 2025

In a significant policy development, Pakistan has granted tax relief to Google under the newly enacted Digital Presence Proceeds Act 2025, sparking debate over the law’s scope and implications for foreign digital companies operating in the country.

According to official sources, the Federal Board of Revenue (FBR) recently assured Kyle Gardner, Google’s South Asia representative, that the company would not be subject to the newly introduced 5% digital services tax. This exemption stems from the fact that Google operates through a registered branch in Pakistan, qualifying it as a local tax resident.

The Digital Presence Proceeds Act 2025—passed in June—was introduced to tax international digital firms with a significant user base in Pakistan but no physical or registered presence. While the law targets services such as cloud computing, e-learning, streaming platforms, telemedicine, and automated digital products, companies like Google with local operations are exempt.

Taxation History and Shifting Policy

Previously, Google’s payments were taxed at 10% under Section 152 of the Income Tax Ordinance, which was later revised to 15%. However, the FBR has now clarified that only a 5% withholding tax may apply to services performed from outside Pakistan. This represents a notable shift in the taxation approach toward one of the country’s biggest digital service providers.

Industry Impact and Criticism

Google is currently the largest digital taxpayer in Pakistan—contributing more than global giants like Meta, Amazon, and Netflix. The recent tax relief has sparked criticism from tax experts and digital policy analysts, who argue that the Digital Presence Proceeds Act 2025 may fall short of expectations.

“Providing exemptions to companies with local branches weakens the core intent of the law,” said a tax analyst. “If major players are given relief, the regulation risks becoming ineffective in generating the projected revenue from the digital economy.”

Special Incentives Under STZ Policy

In a further incentive, the FBR reportedly informed Google that it could avail a complete income tax exemption until 2035 by relocating operations to a Special Technology Zone (STZ), under Clause 123EA of the Income Tax Ordinance, 2001. This clause offers generous tax holidays to tech companies operating within designated innovation zones.

Concerns Over Unequal Tax Treatment

While the Act was designed to ensure tax fairness among global tech firms benefiting from Pakistan’s digital ecosystem, critics fear that selective relief and regulatory ambiguities may lead to unequal tax treatment, discourage local startups, and undermine investor confidence.

The government’s reassurances to Google are now under scrutiny as stakeholders await clarity on how the new law will be applied to other international digital entities operating in Pakistan without a local presence.