Pakistan likely to introduce 5% levy on digital services

Pakistan government is all set to introduce a new tax regime under the "Digital Presence" Proceeds Levy Act, 2025 in budget 2025-26, aimed at bringing foreign and local digital vendors into the national tax net, sources told Nukta.

The law imposes a 5% levy on payments made to companies supplying goods or services digitally to consumers in Pakistan.

The levy will apply to both foreign tech giants—such as Amazon, Google, Facebook, Netflix, and Temu—and local e-commerce platforms, including Daraz and PakWheels.

The law covers all digitally ordered goods and services, whether delivered physically or online.

Under the proposed Act, banks, financial institutions, and payment gateways involved in processing remittances to foreign vendors will be required to deduct the 5% levy at the time of payment.

They will also be mandated to submit detailed quarterly reports to the Federal Board of Revenue (FBR).

According to proposed Act, the tax applies even if a foreign vendor lacks a permanent establishment in Pakistan, as long as they maintain a significant digital presence.

The new law defines digitally delivered services to include streaming platforms, cloud computing, software services, online learning, banking, consultancy, and architectural design.

The proposed Act also includes platforms such as online marketplaces and e-stores that facilitate digital transactions without taking ownership of the goods.

The FBR is trying to bring digital transactions within the scope of the tax regime. The idea is to enforce local tax laws on international platforms operating in the country.

According to the “Digital Presence” Proceeds Levy Act, 2025, the levy generally applies to proceeds from cross-border transactions involving goods or services delivered either physically or digitally.

Foreign vendors will be considered to have a significant digital presence in Pakistan if their annual proceeds from Pakistani users exceed PKR 1 million and they meet conditions such as local data collection, billing in Pakistani currency, local delivery or logistics, after-sales services, or Pakistan-targeted marketing efforts.

Non-compliance with the filing or payment requirements will result in a penalty of PKR 1 million for each default. Additionally, a surcharge at a rate of 3 percent above KIBOR per annum will be applied on overdue amounts.

Recovery of unpaid levies will follow the procedure outlined in the Income Tax Ordinance, 2001. Authorities will block outward remittances to foreign vendors processed via local banks for non-compliance.

The proposed Act grants the right to appeal any tax collection order under this law to the Commissioner of Inland Revenue (Appeals), following existing income tax procedures.