FBR Exempts Foreign Online Purchases from Digital Proceeds Tax, Reversing Earlier Policy
*Retrospective relief from July 1 as government withdraws tax on cross-border e-commerce transactions*
ISLAMABAD: In a significant policy reversal, the Federal Board of Revenue (FBR) has exempted foreign digitally ordered goods and services from the recently imposed Digital Presence Proceeds Tax, effective retrospectively from July 1, 2025.
The decision comes weeks after the government introduced new taxes on both local and foreign e-commerce platforms under the Digital Presence Proceeds Tax Act, 2025, sparking concerns over increased costs for Pakistani consumers and backlash from international stakeholders.
Key Developments:
-
Tax Withdrawn for Foreign Transactions: The FBR issued a notification on Wednesday clarifying that the tax will no longer apply to goods and services ordered digitally from overseas suppliers.
-
Local E-commerce Still Taxed: Domestic digital transactions remain subject to taxation.
-
US-Pakistan Trade Deal Finalized: The move coincides with the conclusion of a trade agreement between Pakistan and the US, expected to reduce tariffs, though specifics remain undisclosed.
Industry and International Reaction:
The initial tax policy had targeted global online marketplaces like Amazon, AliExpress, and Temu, requiring a 5% withholding tax on purchases made by Pakistani customers. Payment gateways and banks were tasked with tax collection, while customs authorities were empowered to withhold shipments unless tax proof was provided.
The US-Pakistan Business Council (USPBC), a branch of the US Chamber of Commerce, had strongly opposed the measure, calling it “discriminatory” and warning it could deter foreign investment. In a June 25 letter to Finance Minister Muhammad Aurangzeb, the council argued that the tax violated international norms and would ultimately burden Pakistani consumers with higher costs.
Government’s Stance:
IT Minister Shaza Fatima Khawaja welcomed the reversal, stating on X (formerly Twitter):
“We have removed the tax imposed on international companies doing e-commerce in Pakistan! Pakistan is open for business!”
What’s Next?
While the exemption eases pressure on cross-border digital trade, questions remain about its impact on local e-commerce competitiveness and future tax policy adjustments. The FBR is expected to release further guidelines on the revised framework soon.
Background: The now-reversed tax was designed to target foreign vendors with a “significant digital presence” in Pakistan but no physical operations. Critics had likened it to controversial Digital Services Taxes (DSTs) in France and the UK, which the US government previously opposed as unfair to American firms.
The withdrawal signals a potential shift in Pakistan’s approach to digital taxation amid efforts to bolster trade relations and attract foreign investment.
