Struggling to keep up with Pakistan’s changing tax landscape for global tech companies? You’re not alone. Just months after the Pakistan Digital Presence Proceeds Tax Act added a 5% levy on foreign digital suppliers, the government has retroactively rolled it back, starting July 1, 2025.
This sudden policy shift affects streaming services, cloud providers, and any non-resident business selling digital goods or services to Pakistan. The pressure was intense—a single new tax threatened profits and made VAT compliance complicated for firms worldwide. Pakistan scraps 5% digital tax on foreign tech firms to support trade talks.
In this article, you’ll learn how the withdrawal changes digital tax compliance for foreign tech firms, what risks or surprises could pop up next, simple steps to stay VAT compliant in Pakistan, and practical tips to stay ready if requirements shift again. If you want clear answers on what you need to do now and for the future, you are in the right place.
What was the 5% Digital Tax?
The Pakistan – Digital Presence Proceeds Tax Act, 2025, created a new tax on foreign companies selling digital services to Pakistani customers. This digital tax, set at 5 percent, was intended to cover a wide range of services, including online ads, streaming, and cloud services.
It was designed to level the playing field between local and foreign digital providers and boost government revenue from the fast-growing digital sector. However, after pressure from the US and international businesses, Pakistan quickly decided to drop the plan and remove the tax, effective from July 1, 2025.
Know the Difference: Digital Tax vs. VAT Compliance
Many foreign tech firms often mix up VAT compliance with new digital taxes. While the withdrawn levy focused on digital services by non-residents, standard VAT obligations remain firmly in place for all digital suppliers. VAT rules have been part of Pakistan’s system for years, requiring digital firms to register, issue compliant invoices, and pay VAT on sales in the country.
The digital tax was separate from, and in addition to, regular VAT requirements. Although the 5 percent digital tax has been eliminated, your VAT compliance journey is not yet complete.
For a broader perspective on how digital service taxes impact cross-border operators, review our overview of digital service taxes in Europe and what to expect.
Immediate Impact: What The Rollback Means for You
Starting July 1, 2025, all foreign digital suppliers are exempt from the 5 percent digital tax—at least for now. This covers services like:
- Online advertising and marketing
- Streaming platforms and cloud software
- App stores and remote learning services
For our clients at 1stopVAT, this means less paperwork and fewer headaches. You do not need to collect, report, or pay the withdrawn digital tax on your invoices. Simple relief—but do not let your guard down just yet.
The Law Remains—And Could Come Back
Here is the catch. Although the tax has been repealed, the legal framework for the Pakistan Digital Presence Proceeds Tax Act remains in effect. The Federal Board of Revenue (FBR) simply issued an exemption (SRO 1366 of 2025). This means future governments can quickly reinstate the levy if negotiations change or economic needs shift.
We recently spoke to digital VAT managers who shared how stressful it is when “rules change overnight.” To stay safe, monitor FBR notifications and always remain updated with reliable news outlets like Dawn News: FBR digital tax exemption.
Final thoughts
Pakistan’s withdrawal of the 5% digital tax gives foreign tech firms a break, but standard VAT rules still apply. The key is to keep your VAT processes solid and watch for news in case the tax returns are affected.
1StopVAT
Stay alert and organized, and your business can handle whatever changes come next. If you need support, the experts at 1stopVAT are ready to help you stay compliant and prepared.
The 5% digital tax in Pakistan was introduced under the Digital Presence Proceeds Tax Act, targeting foreign tech firms that sell digital services, such as online ads, streaming, and cloud services, to Pakistani customers. It aimed to level the playing field between local and international providers.
After pressure from international businesses and the US, Pakistan decided to remove the 5% digital tax to ease trade talks and avoid further complications for foreign firms. This repeal will be effective from July 1, 2025.
No, foreign tech firms still need to comply with Pakistan’s VAT rules, which remain unchanged. The digital tax was separate from VAT, and VAT obligations still apply to digital suppliers in the country.
The rollback means foreign businesses no longer need to collect, report, or pay the 5% digital tax on their invoices for services like online ads, streaming, and cloud software, reducing administrative burdens for digital suppliers.
Yes, while the digital tax has been withdrawn, the legal framework for the tax remains in place. Future governments could reintroduce the levy if economic conditions or negotiations change, so businesses should stay alert to any updates.
Businesses should ensure they remain compliant with Pakistan’s VAT rules and keep an eye on Federal Board of Revenue (FBR) updates. Staying informed through reliable news sources and tax advisors will help businesses adapt to any future tax changes.