In the latest turn of events, a recent proposal presented to the senate members of Pakistani government, proposes to implement taxes on the services being provided by tech giants like Facebook and Google to extend the country’s tax spectrum to include foreign entities as well.

Pakistan’s Federal Board of Revenue a.k.a FBR presented the said proposal, to tax international tech giants providing advertisement revenue services in Pakistan, which include companies such as Google, Facebook and Uber who are earning huge revenue from Pakistan.

According to FBR’s proposal, these entities which are generating revenue by sharing the data of Pakistani users or through the direct advertisement services which they offer will have to pay 5% tax to Pakistan. This tax will be based on their earned digital revenues in the country.

Dr. Mohammad Iqbal, Member Inland Revenue Policy at FBR, briefed the Pakistan Senate’s Standing Committee on the Board’s proposal. However, the committee rejected FBR’s proposals, claiming that it will discourage foreign investment and have an adverse effect Pakistan’s digital revolution.

Verily, it is now up to the National Assembly whether to approve or reject the passage of these newly proposed tax bills.

Other than these proposals, FBR has also suggested that it should have the right to declare any foreign business as fake, subject to whether the company avoids paying taxes in Pakistan and conditionally holds little to no economic value to the country.

Senate’s Reservations on FBR’s proposal

Along with the proposal of taxing the tech giants, the Revenue Board also added that off-shore controlled companies should also be confined in to the tax net.

It is important to mention here the fact that currently all investment under CPEC is exempted from all types of taxes. Perhaps FBR’s intention is to bring this investment under the country’s tax net as well.

Dr. Musaddiq Malik, a member of the Standing Committee was unimpressed by FBR’s suggestions and rejected the proposal saying:

“If the FBR starts taxing the big data, this could undermine Pakistan’s ability to get benefit from the digital revolution. It seems that the FBR has made the budget on the assumption that it can no more tax people in Pakistan and has decided to go after offshore jurisdictions.”

Dr. Iqbal from FBR, on the other hand, said:

“Pakistan has to tax those who are earning billions of rupees from our country under the pretext of bringing foreign direct investment.”

It has long been a practice, that companies in Pakistan split their business into smaller companies with different names, in order to avoid taxes. FBR proposed to bring such companies under the tax net as well. However, the senate’s standing committee rejected this proposal as well. The members of the senate committee maintained that FBR’s proposal will discourage capital formation in Pakistan and went ahead to state that FBR’s proposal was “anti-investment and anti-capital formulation.”