By Staff Reporter
ISLAMABAD: Pakistan has exempted digitally imported goods and services from a 5% tax, following an agreement with the United States aimed at fostering trade relations and attracting foreign digital businesses.
The decision, announced on Thursday, reflects Pakistan’s efforts to balance international trade pressures with its ambitions to grow its digital economy. The tax, introduced as part of the FY25 budget, had drawn criticism from foreign governments, most notably the United States, for its potential to hinder cross-border digital trade.
A senior tax official confirmed that the exemption covers all taxable digital supplies provided by foreign entities. The Federal Board of Revenue (FBR) formalized the change through SRO1366 of 2025, with the exemption taking retrospective effect from July 1, 2025. Despite the policy shift, the legal framework for the tax remains intact under existing law.
Finance Minister Muhammad Aurangzeb secured a trade deal with the US on Thursday. While the terms of the agreement remain under wraps, officials in Islamabad hinted that Pakistan may have won reciprocal trade concessions. A commerce ministry official pointed to similar arrangements by India and other nations, suggesting that Pakistan might have gained market access in other sectors as part of the bargain.
Minister for Information Technology Shaza Fatima Khawaja hailed the move on her official social media account, saying Pakistan is open for business. She confirmed that international e-commerce companies would no longer face the withdrawn levy, a shift expected to resonate with global digital platforms.
The exemption is poised to benefit high-tech firms from the United States and China, with the FBR clarifying that the recently introduced Digital Presence Proceeds Tax will not apply to goods and services ordered online from foreign providers. Platforms such as Google, Netflix, Amazon Web Services, and Zoom, along with other digital utilities, will see their offerings spared from the 5% tax in Pakistan.
Industry analysts see the decision as a boon for Pakistan’s digital ecosystem. Freelancers, IT professionals, and digital entrepreneurs, many of whom rely on international platforms, are expected to gain significantly, with reduced costs potentially spurring growth in the sector.
The FBR had banked on substantial revenue from the digital tax in the FY25 budget, but the exemption throws those projections into question. “I am not sure how it will be compensated,” the tax official said, suggesting that increased exports tied to the US deal could help bridge the gap. No further details were provided on how the government plans to address the shortfall.
Notably, the statutory provision allowing the taxation of digitally imported goods and services remains in place. The federal government retains the authority to reinstate the levy at its discretion, a point underscored by the tax official, who cited Pakistan’s sovereign right to tax consumption at the point of destination. “We have adhered to international standards,” the official added.
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