Lawmakers tender proposals for eCommerce tax revamps
Wanna know about the latest shakeup in Pakistan's eCommerce terrain? Get ready to dive into some exciting updates on the regulatory and taxation front!
In a move to back Pakistan's surging eCommerce sector and support small and medium enterprises (SMEs), the federal government has rolled out some major changes in their taxation and regulatory framework. This development was announced during a high-level meeting aimed at tackling key challenges within the eCommerce sector.
According to a statement released by the Ministry of Commerce, the ministers in charge, Jam Kamal Khan and Shaza Fatima Khawaja, have decided to form a joint working group, drawing in input from the IT Ministry, with the objective of gathering comprehensive recommendations on matters such as taxation, vendor compliance, and digital payments. The group's findings will be ultimately presented to Prime Minister Shehbaz Sharif for consideration.
Interestingly, as part of the FY 2025-26 budget declaration on Tuesday, the federal government introduced a 5% withholding levy on payments made to both domestic and international digital vendors, such as Amazon, Google, Facebook, Netflix, Daraz, Temu, and PakWheels, for any goods or services delivered to Pakistani consumers. Furthermore, an 18% standard VAT is being proposed for online marketplaces facilitating both goods and services (e.g., Daraz, OLX, Zameen, PakWheels), with this proposal aiming to standardise tax treatment and close revenue gaps, particularly in cases where platforms operate as intermediaries.
As we speak, eCommerce Policy 2.0 is reportedly in its final stages of internal review and will soon be submitted for cabinet approval. The Committee stressed the importance of fostering an inclusive, competitive, and digitally empowered trade ecosystem and promised to tackle emerging issues at the highest level.
Pakistan's eCommerce sector has been booming, reaching a market size of $7.7 billion in 2024, with estimates of a 17% compound annual growth rate running up to 2027.
The eCommerce tax world in FY 2025-26 looks like this:
| Transaction Value (Rs) | Tax Rate | Collection Method ||-------------------------------|------------|-------------------------------|| < 10,000 | 1% | Courier/Payment Gateway || 10,000 – 20,000 | 2% | Courier/Payment Gateway || > 20,000 | 0.25% | Courier/Payment Gateway || Cross-border digital goods | 18% GST (proposed) | To be determined || Digitally ordered domestic goods| 2% of gross supply (selected cases) | Supplier collects |
These changes aim to expand the tax base and raise government revenue from the rapidly expanding eCommerce sector in Pakistan, while also focusing on resolving industry concerns through policy revisions and stakeholder consultations.
The introduction of the 5% withholding levy and the proposed standard VAT rate of 18% on online marketplaces signifies growth in Pakistan's finance sector, with technology playing a crucial role in facilitating tax collection from digital vendors like Amazon, Google, Facebook, Netflix, Daraz, Temu, and PakWheels. As the eCommerce Policy 2.0 is finalized, these changes are expected to boost the business ecosystem by expanding the tax base and increasing government revenue from the booming eCommerce sector.
