Pakistan agrees to exempt Google from 5% digital tax amid strengthening US ties

Pakistan has agreed in principle to exempt global tech giant Google from the newly introduced 5% digital tax, reflecting an effort to foster stronger economic ties with the United States and encourage tech sector investment.

A senior Pakistani government official confirmed to Nukta that Pakistan and U.S. officials during recent tariff negotiations discussed the possible exemption of Google from digital tax.

The tax, introduced under the Digital Presence Proceeds Act in the 2025-26 federal budget, aims to increase revenue from international digital companies that have a significant online footprint in Pakistan but lack a registered local presence.

Google unlike other tech giants such as Meta, Amazon, Microsoft, and Netflix has registered as a company with the Securities and Exchange Commission of Pakistan (SECP). As a result, it qualifies as a tax resident under Pakistani law.

"Google is now considered a local entity under the law, which makes it exempt from the 5% digital tax," the official said, noting that the law also excludes transactions linked to a foreign company's registered branch office in Pakistan.

Previously, Google was subject to a 10% withholding tax under Section 152 of the Income Tax Ordinance, a rate that was recently increased to 15%. However, under the new understanding, Google will pay just 5% in income tax effectively reducing its tax burden.

The Pakistani side has also assured U.S. representatives that it will not be subjected to double taxation, clarifying that the Digital Presence Proceeds Tax and Section 152 cannot be simultaneously applied to the same income stream.