Pakistan’s 2025–26 federal budget introduces the Digital Presence Proceeds Tax Act, 2025, aiming to tax revenues generated by foreign digital platforms and online vendors operating in the country without a physical presence.

Key Highlights:

• A 5% withholding levy will be applied to payments made to domestic and international digital vendors (e.g., Amazon, Google, Facebook, Netflix, Daraz, Temu, PakWheels) for goods or services delivered to Pakistani consumers.
• The levy covers both physical and digital goods/services, including streaming, cloud computing, e-learning, consultancy, online banking, and architectural design.
• Banks, fintech firms, and payment gateways must deduct the 5% levy at source and report deductions quarterly to the Federal Board of Revenue (FBR).
• Platforms qualify for taxation if they generate over Rs 1 million annually from Pakistani users or have a significant digital footprint.
• An 18% VAT is proposed for online marketplaces facilitating the sale of goods and services (e.g., Daraz, OLX, Zameen, PakWheels), aiming to standardize tax treatment and close revenue gaps.
• Cash-on-delivery (COD) transactions will now be monitored, ensuring foreign vendors using COD logistics are included in the tax net.
• Enforcement mechanisms such as track-and-trace systems, barcodes, and tax stamps will be introduced to ensure compliance.

Significance:

This law marks a major shift in Pakistan’s approach to digital taxation, ensuring that global tech giants and cross-border sellers contribute to the national tax base. By establishing “digital presence” as a taxable nexus, Pakistan joins countries like India, the UK, and the EU in implementing digital taxation policies.

While the OECD continues to negotiate a global tax framework, unilateral measures like this are seen as essential for emerging economies struggling with revenue shortfalls. However, the law’s success will depend on effective implementation, coordination with financial intermediaries, and compliance from global platforms.

This move is expected to increase tax revenue, regulate e-commerce transactions, and create a fairer competitive landscape for domestic businesses.