5% tax on digital goods, services supplied from abroad withdrawn

FBR had initially projected revenue impact of Rs39bn from this tax in FY26 budget

By Mehtab Haider
July 31, 2025

A representational image shows a mobile phone connected to a large screen showing different algorithms. — Unsplash/File
A representational image shows a mobile phone connected to a large screen showing different algorithms. — Unsplash/File

ISLAMABAD: The government has withdrawn five percent Digital Presence Proceeds Tax on goods and services supplied from abroad by high-tech international companies, following approval from the federal cabinet.

The Federal Board of Revenue (FBR) had initially projected a revenue impact of Rs39 billion from this tax in the 2025-26 budget. The withdrawal signifies the removal of the levy imposed on US and Chinese high-tech companies. This marks the first step toward abolishing the five percent Digital Presence Proceeds Tax, which was introduced through the Finance Act 2025 after parliamentary approval.

The move is seen as an effort to secure a favourable trade deal with the Trump Administration. The US had previously imposed a 25 percent tariff on India, and Pakistan is now pushing to finalise a beneficial agreement, possibly as early as Thursday (today).

The five percent tax on digitally ordered goods from abroad had led to a significant price surge, with costs rising three to four times in the past month. The tax faced strong opposition from Pakistan’s youth, who demanded its repeal. Islamabad has now abolished the tax on digitally ordered goods and services from both US-based companies like Google and Chinese firms like Temu.

The FBR issued the official notification following approval by the federal cabinet during a meeting chaired by Prime Minister Shehbaz Sharif on Wednesday.

As per Statutory Regulatory Order (SRO) No 1366 (l) 2025, issued under Section 15 of the Digital Presence Proceeds Tax Act, 2025, the federal government has directed that the tax shall no longer apply to digitally ordered goods and services supplied from outside Pakistan by any entity chargeable under the Act. The notification will take effect from July 1, 2025.

The Digital Presence Proceeds Tax Act, 2025 had imposed a five percent levy on proceeds from digitally ordered goods and services delivered from abroad, aiming to protect Pakistan’s taxing rights in the digital economy.