Pakistan Announces Tax Relief for Google

Pakistan Announces Tax Relief for Google

Pakistan Announces Tax Relief for Google that it will not be liable for the newly implemented 5% digital tax.

This guarantee, conveyed by the Federal Board of Revenue (FBR) to Google’s South Asia government affairs representative, Kyle Gardner, has ignited discussions regarding the efficacy of the recently passed Digital Presence Proceeds Act 2025, as reported by Tribune.

Critics argue that the government may not have thoroughly evaluated the implications prior to enacting the law last month.

The Digital Presence

The Digital Presence Proceeds Act, which was introduced in June, aims to enhance tax collection from international corporations that have a significant digital presence in Pakistan but lack a physical or registered office.

Nevertheless, officials from the FBR have informed Google that the legislation is aimed solely at those companies that do not maintain a local office, indicating that Google, which has a registered branch in Pakistan, is not the target of this law.

Google provides a variety of services in Pakistan, including online advertising, search, cloud computing, and entertainment, making it the largest contributor to the country’s digital service tax. In comparison, companies such as Meta, Amazon, Microsoft, and Netflix contribute significantly less to the over Rs. 1 billion collected each year from technology giants, as reported by the Express Tribune.

The FBR clarified that due to Google functioning through a registered branch office, it is considered a tax resident according to Pakistani law, thus exempting it from the 5% digital tax. Additionally, the new legislation also provides exemptions for payments related to digital goods and services associated with a foreign company’s branch office in Pakistan.

“As you are operating through a registered branch, your activities are fully covered by this exemption. Likewise, the provisions of the digital services tax in the income tax law do not pertain to tax residents of Pakistan,” the FBR communicated to Google officially.

In the past, Google faced a 10% tax under Section 152 of the Income Tax Ordinance, which was recently raised to 15%. However, the government has now suggested that Google might only need to pay a reduced income tax rate of 5% instead of the higher one.

Officials have made it clear that if any of Google’s operations occur outside of Pakistan, the new digital regulations will impose a tax rate of 5%, rather than the 15% that Google initially anticipated.

The FBR also guaranteed Google that it would not encounter double taxation, as the Digital Presence Proceeds Tax and Section 152 cannot be enforced on the same transaction.

As an additional incentive, the government has proposed a full income tax exemption for Google if it moves its local office to a Special Technology Zone (STZ). According to Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, companies functioning in these zones are exempt from income tax until 2035.

The Digital Presence Proceeds Act was established to impose taxes on automated digital services provided online, including streaming, cloud computing, software, telemedicine, e-learning, and various other internet services. However, the recent commitments made to Google have sparked concerns about whether the law will fulfill its intended objectives.