In a move that has generated both optimism and controversy, the Government of Pakistan has assured Google that it will not be subject to the newly imposed 5% digital tax, claiming its local presence in the country.
The Federal Board of Revenue (FBR) conveyed this message directly to Kyle Gardner, Google’s South Asia government affairs representative, during recent consultations. The reassurance comes as part of efforts to clarify the scope of the newly enacted Digital Presence Proceeds Act 2025, which was introduced in June to bring foreign digital service providers into the tax net.
Who Is Affected—And Who Isn’t?
As per FBR officials, the 5% tax only applies to companies with a significant digital footprint in Pakistan but without any physical or registered office in the country. Since Google has a registered branch in Pakistan, it qualifies as a tax resident and is thus exempt under both the new law and existing tax provisions.
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“You are operating through a registered branch, so your operations fall squarely within this exemption,” the FBR stated in a formal communication to Google.
The clarification has raised eyebrows among some tax experts, who argue that exempting major players like Google could undermine the purpose of the law—which is to ensure digital companies contribute fairly to Pakistan’s economy.
Google’s Tax Role and the Bigger Picture
Google is one of the largest contributors to Pakistan’s digital tax base, thanks to its vast suite of services including advertising, YouTube, cloud services, and more. In contrast, companies like Meta (Facebook), Amazon, Microsoft, and Netflix reportedly contribute significantly less, despite having substantial user bases in the country.
Previously, Google was taxed under Section 152 of the Income Tax Ordinance at a 10% rate, recently increased to 15%. Now, officials have hinted that Google may instead pay as little as 5 percent under the new digital tax regime—or even receive a complete tax exemption if it relocates its local branch to a Special Technology Zone (STZ).
Incentives vs. Implementation
Under Clause 123EA, companies operating within STZs enjoy full income tax exemptions until 2035—a major incentive is meant to attract global tech investment to Pakistan.
While the FBR’s position reassures major players like Google, critics caution that such exceptions may weaken the effectiveness of the new tax law, which was designed to modernize and broaden Pakistan’s revenue system in the digital age.
The coming months are expected to unveil whether the government can strike the right balance—welcoming investment while ensuring fair tax contribution from all global digital service providers.