Islamabad, Pakistan – The Federal Board of Revenue (FBR) has informed Google that the tech giant will not be subject to Pakistan’s recently enacted 5% digital tax. This assurance, conveyed to Kyle Gardner, Google’s South Asia government affairs representative, has ignited debate regarding the efficacy and intended targets of the Digital Presence Proceeds Act 2025, which was passed just last month.

Critics argue that the government may have overlooked potential repercussions before legislating the new tax. The Digital Presence Proceeds Act, introduced in June, was conceived to bolster tax revenue from international companies with substantial digital operations in Pakistan but lacking a physical or registered presence within the country.

However, FBR officials clarified to Google that the law specifically targets firms without a local office. Since Google maintains a registered branch in Pakistan, it is not considered the intended target of this new legislation.

Google, a major provider of online advertising, search, cloud computing, and entertainment services in Pakistan, is the largest contributor to the nation’s digital service tax. In contrast, other tech giants such as Meta, Amazon, Microsoft, and Netflix contribute significantly less to the over Rs. 1 billion collected annually from the sector.

The FBR explained that Google’s status as a tax resident, due to its registered branch office, exempts it from the 5% digital tax. The new law also excludes payments for digital goods and services that are effectively 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 stated in its official communication to Google.

Previously, Google was subject to a 10% tax 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 potentially 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 had anticipated.

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

In an additional incentive, the government has offered Google a 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 zones are exempt from income tax until 2035.

The Digital Presence Proceeds Act was initially envisioned to tax automated digital services delivered via the internet, including streaming, cloud computing, software, telemedicine, and e-learning. However, the recent assurances provided to Google have prompted questions about whether the law will effectively achieve its original revenue-generating objectives.