The Federal Board of Revenue (FBR) has come under scrutiny following its recent assurance to Google’s South Asia government affairs representative, Kyle Gardner, regarding the company’s tax obligations under the Digital Presence Proceeds Act 2025. The communication, reported by The Express Tribune, has ignited a broader debate about the practical implications and enforcement strength of the newly enacted law.
Introduced in June 2025, the Digital Presence Proceeds Act was designed to increase tax revenue from international digital companies that generate significant profits from Pakistani users but lack a physical or registered presence in the country. The legislation sought to close tax loopholes exploited by global tech giants and ensure a fairer contribution to the national economy.
However, the recent clarification given by the FBR to Google has triggered criticism from experts and lawmakers, who argue that the government may have hastily passed the law without fully considering its long-term implications.
Google Deemed Exempt Under New Rules
According to the FBR’s official correspondence, Google is not subject to the new 5% digital tax, as it operates in Pakistan through a registered branch office, which qualifies it as a tax resident under Pakistani law. The FBR explicitly stated that the new law targets only those foreign firms with no physical presence in Pakistan, meaning Google does not fall within its scope.
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 informed Google.
This exemption extends to all payments related to digital goods and services provided by companies with local offices, thereby excluding Google from the new tax structure entirely. Previously, under Section 152 of the Income Tax Ordinance, Google was taxed at a 10% rate, which was recently increased to 15%. Now, due to the clarified position, the company may end up paying as little as 5% income tax on certain operations—significantly less than anticipated.
Additionally, the FBR assured Google that it would not be subjected to double taxation, affirming that the Digital Presence Proceeds Tax and Section 152 cannot be applied simultaneously on the same transaction.
Incentives for Tech Giants: Relocation to Special Technology Zones
In a move aimed at attracting further investment from global tech companies, the FBR also offered Google complete income tax exemption if it chooses to relocate its local branch to a Special Technology Zone (STZ). Under Clause 123EA of the Second Schedule of the Income Tax Ordinance, 2001, companies operating within these designated STZs enjoy full income tax exemptions until 2035.
This incentive has been widely welcomed by some industry players but has also added to the skepticism surrounding the actual enforcement power of the new law.
Disparity in Tax Contributions Among Tech Giants
According to data reported by The Tribune, Google remains the largest contributor to Pakistan’s digital services tax, thanks to its broad portfolio, including search, advertising, YouTube, cloud services, and entertainment. In contrast, other major international companies like Meta (Facebook), Amazon, Microsoft, and Netflix contribute far less, despite significant user engagement and revenue generation from Pakistani audiences.
This disparity underscores the very issue the Digital Presence Proceeds Act aimed to fix—taxing companies that profit from the Pakistani market without establishing a local footprint. Critics now argue that offering exemptions and tax reliefs to the only major tech firm already complying with local tax laws defeats the purpose of the new legislation.
Concerns and Criticism
The FBR’s leniency towards Google has led to widespread speculation about the effectiveness of the Digital Presence Proceeds Act. Critics suggest that the law lacks the enforcement strength needed to compel non-resident digital companies to register and pay taxes in Pakistan. There are also concerns that policy inconsistency and unclear exemptions could discourage compliance rather than encourage it.
While incentives for tech giants are necessary to boost investment, overly generous exemptions undermine the spirit of tax reform,a tax policy analyst told The Tribune.This could set a precedent for other companies to seek similar exemptions or avoid local registration altogether.
The Digital Presence Proceeds Act 2025 was introduced with the intent to level the digital taxation playing field and enhance government revenue through the booming digital economy. However, the FBR’s assurance to Google, though legally justified, raises valid concerns over the execution, fairness, and effectiveness of the law.
As digital services continue to grow in Pakistan, policymakers must strike a balance between encouraging foreign investment and ensuring equitable tax compliance. Without strong and consistent enforcement, the Act may fall short of its potential to reshape Pakistan’s digital tax landscape.
