Foreign online companies receive rare break in Pakistan

Pakistan has withdrawn a controversial five per cent tax on foreign online companies selling their products in Pakistan.

It is a case that has highlighted issues ranging from flaws in Pakistan’s tax collection network, to managing the fallout from targeting of foreign businesses, notably those based in the United States.

The controversy emerged in June this year when the new ‘Digital Presence Proceeds Tax’ was announced in the budget for the next financial year from July 2025 till June 2026. Examples of foreign businesses that sell their products in Pakistan include services like Amazon or Temu.

On 25th June this year, Esperanza G Jelalian President of the US-Pakistan Business Council of the US Chamber of Commerce, in a letter to Pakistan’s finance minister Muhammad Aurangzeb wrote: “Recent experience demonstrates that such taxes are most likely to be borne by Pakistani consumers, who will face higher costs for goods and services. Furthermore, imposing such a tax could stifle expansion and job creation among local Pakistani companies that rely on digital tools supplied by foreign companies”.

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She added: “As Pakistan continues to grow its digital economy, transparency and predictability in the legislative process will be critical to ensuring that foreign companies can continue to provide services and invest in Pakistan”.

In Islamabad, a senior government official who spoke to HUM News on condition that he will not be named said, the withdrawal of the tax followed demands by US officials in meetings with Pakistan’s finance minister Muhammad Aurangzeb.

The finance minister is presently in Washington for discussions with senior US officials to finalise details of future US tariffs on Pakistan’s exports. The administration of US president Donald Trump earlier this year announced an additional tariff of 29 per cent on Pakistan’s exports to the US, before putting that decision on hold for further discussion.

On Thursday, Trump announced on his truthsocial.com that he had “just concluded a Deal with the Country of Pakistan, whereby Pakistan and the United States will work together on developing their massive Oil Reserves. We are in the process of choosing the Oil Company that will lead this Partnership”.

The announcement did not specify a future tariff that the US will charge on imports from Pakistan. But businessmen in Karachi who spoke to HUM News said, the US was likely to offer concessions that will reduce the earlier additional tariff of 29 per cent.

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The case of the tariff on digital sales in last month’s annual budget, triggered criticism from members of Pakistan’s emerging information technology sector. Many critics described it as a case of another tax on a sector that is already taxed while parts of the broader economy either live without taxes or pay amounts that are significantly below their dues.