ISLAMABAD: The Government of Pakistan has implemented a new digital tax law that brings earnings from YouTube, social media platforms, and other online services under the tax net.
The law now mandates taxation on income generated through audio, video, and music streaming services, as well as across several digital sectors including telemedicine, e-learning platforms, cloud services, and online banking.
Additionally, e-commerce websites, online stores, and digital marketplaces are also subject to the new tax regime. Banks and exchange companies that transfer payments to foreign digital service providers must withhold a 5% tax on these transactions and deposit it into the national treasury by the 7th of each month. Failure to do so will result in legal consequences for the financial institutions involved.
As part of increased oversight, all social media platforms operating in Pakistan are now required to submit quarterly reports to the government. Similarly, institutions handling foreign purchases must submit reports detailing the buyer’s name, CNIC number, payment date, and transaction amount.
A penalty of Rs1 million will be imposed for failing to file these quarterly reports. Furthermore, if a foreign company defaults on tax payments for three consecutive months, their bank transfers will be suspended.
This move is part of the government’s broader agenda to regulate the digital economy and ensure tax compliance from rapidly expanding online sectors.
The announcement comes shortly after Finance Minister Muhammad Aurangzeb presented the Federal Budget 2025–26 on June 10. Key highlights of the budget include:
Economic Performance & Reforms
- GDP Growth: Targeted at 4.2%.
- Inflation: Reduced to 4.7%, with a target of 7.5% for FY2025–26.
- Fiscal Indicators: Primary surplus at 2.4%, budget deficit at 3.9% of GDP.
- Remittances: Up 31%, expected to hit $38 billion.
- Foreign Reserves: Projected at $14 billion by year-end.
- Debt-to-GDP: Brought down from 74% to below 70%.
Tax & Revenue Reforms
- FBR Digitisation: Includes AI-based audits, e-invoicing, faceless customs.
- Tax Compliance: Rs30 crore recovered from non-filers, 47% revenue jump in sugar sector.
- Salaried Tax Relief:
- Tax cut from 5% to 1% (income: Rs600K–1.2M).
- 15% to 11% (income: up to Rs2.2M).
- Super Tax: Reduced by 0.5% for firms earning Rs10M–500M.
New Taxes Introduced:
- Carbon Levy: Rs2.5/litre (to rise to Rs5).
- E-commerce Sales Tax: 18% on digital goods/services.
- Pension Tax: 5% on annual pensions exceeding Rs1 crore (under age 70).
Energy Sector Reforms
- Rs3,000B savings from renegotiated IPP contracts.
- Closure of 3,000MW furnace oil plants.
- Privatization of DISCOs in Faisalabad, Gujranwala, Islamabad in progress.
- Hydropower Investment: Rs67.2B allocated to Dasu and Mohmand dams.
Infrastructure & Development
- Federal PSDP: Rs1,000B
- Rs328B for roads
- Rs133B for water security (Diamer-Bhasha, Mohmand Dams)
- Reko Diq Project: $75B in cash flows, 41,500 jobs expected.
Social Welfare & Public Services
BISP: Allocation raised to Rs716B, to cover 10 million households.
- Education: Rs9.8B for schools in underserved areas.
- Health: Rs14.3B, including Jinnah Medical Complex (Islamabad).
- Salary & Pension Increases:
- 10% for government employees (Grade 1–22)
- 7% pension hike
Sector-Specific Highlights
- Agriculture: Rs2,066B in loans; interest-free credit for small farmers.
- IT & Exports:
- ICT exports up 21.2% ($3.1B)
- $25B export target in 5 years
- Housing:
- WHT cut from 4% to 2.5%
- Incentives for low-income housing
- Overseas Pakistanis:
- Special courts, university quotas, civil awards for top remitters.
This multifaceted budget and regulatory shift reflect the government’s focus on broadening the tax base, modernising fiscal administration, and ensuring digital sector accountability.
