Govt to Impose 5% Tax on Local and International Tech Companies Generating Revenues in Pakistan

The federal government is introducing the “Digital Presence” Proceeds Levy Act, 2025, which imposes a new tax on foreign vendors like Amazon, Facebook, Google, Temu etc., and local vendors like Daraz and Pak Wheels supplying digitally ordered goods and services to consumers in Pakistan. Senior-level sources told ProPakistani that all banks, financial institutions, and payment gateways involved in making payments to foreign vendors will be required to deduct the levy at the time of outward remittance. The tax rate has been set at 5 percent of the total amount paid for both goods and services. These intermediaries must also submit detailed quarterly statements to the Federal Board of Revenue and suspend payments to non-compliant vendors. The tax will be charged even if the foreign vendor has no permanent establishment in Pakistan, as long as it maintains a significant digital presence in the country. The new law defines digitally delivered services to include streaming platforms, cloud computing, software services, online learning, banking, consultancy, and architectural design. E-commerce covers transactions conducted over electronic networks for purchasing or selling goods and services. The Act also includes platforms such as online marketplaces and e-stores that facilitate digital transactions without taking ownership of the goods. The Revenue Division 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 Rs. 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 Rs. 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 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. So far, tax authorities have yet to clarify how they intend to regulate credit card payments processed for above mentioned services.