The Pakistani government has announced plans to implement the Digital Presence Proceeds Levy Act 2025, introducing a comprehensive 5% tax on both international and domestic technology companies operating within the country.
Who Will Be Affected?
The new legislation targets a broad range of digital service providers, including:
International Platforms:
- Global e-commerce giants like Amazon and Temu
- Social media platforms such as Facebook
- Search and advertising services like Google
- International streaming and cloud services
Local Digital Businesses:
- Pakistani e-commerce platforms like Daraz
- Local online marketplaces such as Pak Wheels
- Domestic digital service providers
How the Tax System Works
Under the new framework, financial institutions will play a crucial role in tax collection. Banks, payment gateways, and other financial intermediaries must deduct the 5% levy during outward remittances to foreign vendors. These institutions are also required to submit detailed quarterly reports to the Federal Board of Revenue (FBR) and halt payments to non-compliant companies.
Scope of Digital Services
The Act encompasses a wide range of digital offerings:
- Streaming Services: Entertainment and media platforms
- Cloud Computing: Data storage and processing services
- Software Solutions: Applications and digital tools
- Online Education: E-learning platforms and courses
- Digital Banking: Financial technology services
- Professional Services: Online consultancy and design services
- E-commerce: Digital marketplaces and online retail
Qualification Criteria
Foreign companies will be subject to this tax if they demonstrate “significant digital presence” in Pakistan, defined as:
- Annual revenue from Pakistani users exceeding Rs. 1 million
- Collection of local user data
- Billing customers in Pakistani rupees
- Providing local delivery or logistics services
- Offering after-sales support within Pakistan
- Conducting marketing campaigns targeted at Pakistani consumers
Compliance and Penalties
The government has established strict enforcement measures to ensure compliance. Companies failing to meet filing or payment requirements face penalties of Rs. 1 million per violation. Additionally, overdue amounts will incur a surcharge of 3% above the Karachi Interbank Offered Rate (KIBOR) annually.
For recovery of unpaid taxes, authorities will follow procedures outlined in the Income Tax Ordinance 2001. Non-compliant foreign vendors may have their payment channels blocked through local banking systems.
Appeals Process
Companies disputing tax assessments can appeal to the Commissioner of Inland Revenue (Appeals), following established income tax appeal procedures.
Implementation Challenges
Tax authorities have not yet clarified their approach to regulating credit card payments for digital services, leaving some uncertainty about the practical implementation of the new tax regime.
Government Objectives
This initiative represents Pakistan’s effort to modernize its tax system and capture revenue from the growing digital economy. By targeting both local and international digital platforms, the government aims to ensure that companies benefiting from Pakistan’s digital market contribute appropriately to the national treasury.
The Digital Presence Proceeds Levy Act 2025 reflects a global trend of governments adapting their tax policies to address the challenges posed by digital commerce and the borderless nature of online business operations.