In a move that’s both strategic and controversial, the Federal Board of Revenue (FBR) has assured Google that it will not be subject to the 5% digital tax introduced under Pakistan’s Digital Presence Proceeds Act 2025. This announcement was made during discussions with Kyle Gardner, who oversees government affairs for Google South Asia.

The clarification comes amid confusion surrounding the scope and intent of the Act, which was passed in June to tax foreign digital companies that earn revenues in Pakistan without maintaining a registered presence.

However, FBR was quick to distinguish Google from this category. Since the tech company operates a registered branch within Pakistan, it qualifies as a local tax resident. As a result, it falls outside the purview of the new digital tax.

This latest development casts doubt on how effectively the new law will target companies that truly evade taxes while operating digitally within Pakistan’s borders. Analysts argue that this move could weaken the enforcement of the law, which was designed to generate new tax revenues from global tech platforms offering services such as cloud computing, software, and streaming.

Furthermore, in an effort to deepen Google’s investment in Pakistan, FBR has extended an offer for complete income tax exemption—provided the company moves its operations to a Special Technology Zone (STZ). Under the Second Schedule Clause 123EA, STZ-based businesses enjoy tax-free status through 2035.

Previously subject to a 15% income tax (up from the earlier 10%), Google could now see its liabilities drop significantly—possibly to zero—if it aligns with the government’s tech zone strategy.

FBR also clarified that double taxation will be avoided, with distinct rules applying to local and foreign-managed operations. This nuanced policy signals an attempt to balance foreign investment incentives with broader digital tax reforms.