The government is set to implement the “Digital Presence” Proceeds Levy Act, 2025. This law introduces a new tax on foreign and local vendors offering online goods and services in Pakistan. Companies such as Amazon, Facebook, Google, Temu, Daraz, and Pak Wheels will fall under this rule.
According to sources that banks, financial institutions, and payment gateways handling payments to foreign vendors will need to deduct the tax during outbound transactions. The tax is set at 5% of the total payment for both products and services. These payment processors must also send detailed quarterly reports to the Federal Board of Revenue and hold payments to vendors who do not comply.
The tax applies even if the foreign company does not have a physical office in Pakistan. As long as it maintains a substantial digital presence there, it will be taxed. The law defines this presence as activities like streaming, cloud services, online software, e-learning, banking, consulting, or design work. It also includes e-commerce transactions conducted over the internet—buying and selling goods or services online.
Platforms that facilitate digital sales, like online marketplaces or e-stores, are also covered, even if they don’t own the goods. The goal is to extend local tax rules to these international platforms operating within Pakistan.
The law states that taxes will apply to income from cross-border deals involving goods or services delivered either physically or digitally. A foreign vendor will be considered to have a significant digital footprint in Pakistan if it earns more than Rs. 1 million annually from Pakistani users. They also must meet criteria such as collecting data locally, billing in Pakistani currency, providing local delivery options, offering after-sales support, or targeting marketing efforts at Pakistan.
Failure to file reports or pay the tax on time will lead to fines of Rs. 1 million for each default. An overdue amount will accrue a surcharge of 3 percent per year above KIBOR rates. Authorities will recover unpaid taxes by blocking international money transfers through local banks.
The law allows taxpayers to challenge payment orders by appealing to the Commissioner of Inland Revenue (Appeals). The appeal process will follow current income tax rules. However, authorities have yet to specify how they will handle credit card payments for the services listed under this law.
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