ISLAMABAD: Pakistan has withdrawn the 5 percent tax on foreign technology companies and digital platforms supplying goods and services into the country, just weeks after the levy took effect.
The Federal Board of Revenue (FBR) issued the exemption on Wednesday, coinciding with Finance Minister Muhammad Aurangzeb’s visit to Washington for high-level trade discussions, media has reported.
The tax had originally been introduced in the budget for the fiscal year 2025–26 under the newly enacted Digital Presence Proceeds Tax Act. It aimed to capture revenue from cross-border digital transactions that had previously gone untaxed due to the absence of a permanent physical presence by foreign vendors in Pakistan.
According to the official notification, the exemption applies to all non-resident entities and is retroactive from July 1, 2025—the day the tax law came into force. While the measure benefits foreign digital companies broadly, the decision aligns with efforts to ease tensions and unlock progress in ongoing trade negotiations.
The tax waiver is expected to result in a substantial revenue shortfall, amounting to billions of rupees. Finance Ministry sources indicated that discussions are underway to manage the fiscal impact of the decision and ensure it does not jeopardize Pakistan’s broader macroeconomic commitments.
The tax had applied to a wide range of digitally delivered goods and services, including online advertising, software, cloud storage, video and audio streaming, remote education and healthcare, banking, consulting, and professional services transmitted electronically.
The delivery of such services, often automated or involving minimal human interaction, had become a significant part of the digital economy but remained outside the tax net until this year.
To enforce the tax, the FBR had placed responsibility on banks and other payment intermediaries to deduct and report collections from digital payments made to offshore vendors. These institutions were expected to submit quarterly reports on the revenue generated through international digital commerce.
The government’s decision to withdraw the tax reflects a shift in policy as Pakistan seeks to maintain investor confidence, protect digital service access, and strengthen trade relations.
