In an effort to expand its tax base and address longstanding revenue gaps, Pakistan has introduced the Digital Presence Proceeds Tax Act, 2025, through the federal budget for the fiscal year 2025–26. This legislation targets foreign digital platforms and online vendors that generate revenue from Pakistani users without having a physical presence in the country. The act marks a significant development in the government’s strategy to integrate the fast-growing digital economy into the formal tax system.
Central to the new law is the introduction of a 5% withholding levy on payments made to digital vendors, both local and international, for goods or services delivered within Pakistan. This levy applies broadly to transactions involving both physical and digital products, covering areas such as video streaming, online marketplaces, e-learning, software-as-a-service, digital consultancy, and cloud computing. Vendors including Amazon, Netflix, Google, Facebook, Daraz, Temu, and PakWheels fall under this scope if they surpass the Rs 1 million annual revenue threshold from Pakistani consumers or demonstrate a substantial digital footprint.
The levy is to be deducted at the source by banks, fintech platforms, and payment gateways during the transaction process. These entities are also required to submit quarterly reports of such deductions to FBR, thereby formalizing and documenting the revenue generated through digital transactions within Pakistan’s economy. This move aims to establish greater transparency in the operations of global and local online service providers and to strengthen the country’s digital taxation framework.
Additionally, the federal budget proposes an 18% Value Added Tax (VAT) on online marketplaces that facilitate sales of goods and services. This provision seeks to bring tax parity among online platforms that act as intermediaries between sellers and buyers, including companies like OLX, Daraz, Zameen, and PakWheels. By standardizing tax responsibilities for digital intermediaries, the government aims to streamline compliance while plugging gaps that previously enabled tax avoidance.
A specific focus has been placed on platforms using the widely adopted cash-on-delivery (COD) model. Foreign platforms delivering goods to Pakistani consumers via COD logistics channels will now be subject to taxation in line with local vendors. This change addresses a major blind spot in digital commerce regulation and brings foreign e-commerce businesses into the formal tax framework.
To support enforcement, the government has announced measures such as the introduction of barcoding, tax stamps, and track-and-trace systems to verify and monitor digital transactions more effectively. These tools, supported by technology and analytics, are designed to enhance FBR’s monitoring capacity and ensure broader compliance with the new regulations.
The act represents a structural shift in Pakistan’s approach to taxing the digital economy. By legally defining “digital presence” as a taxable nexus, the country joins other nations like India, the UK, and EU members in asserting its right to collect taxes from tech firms and cross-border digital sellers earning significant revenue from local consumers. This move aligns with the evolving global trend of digital taxation, especially as negotiations continue under OECD frameworks. The law’s efficacy will rely heavily on implementation, the responsiveness of financial intermediaries, and the cooperation of global platforms operating in Pakistan.
