Govt of Pakistan Introduces Digital Tax on YouTube, Social Media & Online Businesses

ISLAMABAD: The Government of Pakistan has introduced a fresh digital tax policy targeting earnings from social media platforms, online content creators, and digital service providers. This step is part of a wider plan to bring the rapidly expanding digital sector under regulation and to improve tax revenue collection from individuals and businesses operating online.

Who Will Be Impacted?

The new legislation will impose taxes on income derived from:

• Social media platforms such as YouTube, Facebook, and Instagram
• Streaming services (audio and video) including Spotify and Netflix
• Online music services
• E-learning and telehealth platforms
• Cloud services and internet banking
• E-commerce and digital marketplaces

Bank Deductions on Digital Transactions

Banks and money exchange firms are now required to withhold a 5% tax on payments made to foreign digital entities like YouTube, Amazon, or Meta. The deducted amount must be deposited into the national exchequer by the 7th day of every month. Non-compliance by banks or exchange companies will incur legal penalties.

Reporting Obligations for Digital Platforms

• Payment amounts
• Full name and CNIC of the recipient
• Transaction dates and specifics

Federal Budget 2025–26 – Key Highlights

Finance Minister Muhammad Aurangzeb presented the new budget on June 10, 2025, outlining significant reforms in taxation, digitization, and development efforts.

Economic Objectives

• GDP Growth Target: 4.2%
• Inflation Rate: Reduced to 4.7% (down from 29.2% two years ago)
• Remittances: Expected to rise by 31%, reaching $38 billion
• Foreign Reserves: Estimated at $14 billion
• Debt-to-GDP Ratio: Decreased to 70%

Major Tax Reforms

• AI-Driven Digital FBR System: Introduction of e-invoicing and faceless customs procedures
• Sugar Sector Revenue: Increased by 47%
• Non-Filer Penalty Revenue: Rs. 30 crore collected

Tax Relief for Salaried Individuals:

• Income between Rs. 600,000–1.2 million: Tax reduced from 5% to 1%
• Income up to Rs. 2.2 million: Tax lowered from 15% to 11%
• Super Tax Reduction: 0.5% cut for companies earning between Rs. 10 million and Rs. 500 million

New Tax Implementations:

• Carbon Levy: Increased from Rs. 2.5/liter to Rs. 5/liter starting FY2026-27
• E-commerce Tax: 18% on online services and products
• Pension Tax: 5% on pensions exceeding Rs. 1 crore (for individuals under 70)

Energy and Infrastructure Initiatives

• Rs. 3,000 billion saved by closing furnace oil power plants
• Rs. 67.2 billion allocated for Dasu and Mohmand dams
• Plans for privatizing power companies (DISCOs) in Faisalabad, Gujranwala, and Islamabad

Development Expenditures

• PSDP Budget: Rs. 1,000 billion
• Transport Projects: Rs. 328 billion
• Water and Irrigation: Rs. 133 billion
• Reko Diq Project: Anticipated earnings of $75 billion, creating over 41,000 jobs

Social Welfare and Salary Increases

• BISP Expansion: Rs. 716 billion allocated for 10 million families
• Education Reforms: Rs. 9.8 billion for new schools
• Healthcare Funding: Rs. 14.3 billion including support for Jinnah Medical Complex
• Government Salaries and Pensions:
  • 10% increase in salaries
  • 7% rise in pensions

Agriculture and IT Support

• Rs. 2,066 billion in loans for agriculture; small farmers to receive interest-free credit
• ICT exports increased by 21.2% to $3.1 billion, with a target of $25 billion in five years
• Property Tax Relief: Withholding tax reduced from 4% to 2.5%
• Support for Overseas Pakistanis: Special quotas, legal assistance, and civil honors planned

Green Finance and Sustainability Initiatives

• Secured $40 billion in green funding over the next decade via the World Bank/IFC
• Launch of Pakistan’s first Green Sukuk for eco-friendly projects

Privatization and Government Reforms

• Major public entities like PIA and Roosevelt Hotel set for privatization
• 45 state-owned enterprises to be sold or shut down
• Reduction of 40,000 government jobs to cut spending

Conclusion: A New Era in Taxation and Digital Governance

The federal budget for this year aims to modernize Pakistan’s tax framework, digitize the economy, and ensure fairness in contributions. The introduction of digital taxes reflects the government’s commitment to integrating online businesses and influencers into the formal economy.