In Pakistan’s recently announced 2025 federal budget, the e-commerce sector has found itself under the weight of tax reform measures that appear to misunderstand the industry’s unique structure and challenges. While large headlines focused on revenue goals and minor relief to salaried individuals, some of the most consequential policy shifts are embedded deeper in the budget documents — particularly those aimed at digital commerce.
The government has proposed a set of new regulations that could fundamentally reshape how e-commerce functions in Pakistan. Central among these is the imposition of an 18 percent general sales tax (GST) on e-commerce transactions, effectively bringing online platforms in line with traditional retail outlets. Furthermore, digital marketplaces and courier services are now restricted from partnering with unregistered vendors, forcing them to strictly monitor tax compliance within their ecosystems.
On the surface, these changes may seem like logical steps toward formalizing Pakistan’s rapidly growing digital economy, estimated to be worth around $7–8 billion. Tax parity between online and offline sellers could in theory level the playing field. However, the comparison breaks down when considering that a large portion of Pakistan’s brick-and-mortar retail operates informally, often without registration with the Securities and Exchange Commission of Pakistan (SECP) or structured corporate frameworks.
For online sellers, the costs are already higher due to logistics, technology platforms, and marketplace commissions. This new tax burden will likely raise prices for consumers even further, putting e-commerce at a competitive disadvantage compared to physical retail outlets that continue to operate outside the formal tax net.
Adding to the pressure, the budget also introduces a withholding tax ranging from 0.5 to 2 percent on gross merchandise value, not profit. Such a tax structure disproportionately affects low-margin sellers and small businesses by taxing them on turnover instead of earnings. Even more concerning is the decision to delegate the responsibility of tax collection and compliance enforcement to third-party logistics providers and online platforms, who now have to ensure vendor registration, collect withholding and sales taxes, and file compliance reports — all without the infrastructure, training, or financial support to carry out these duties.
Traditionally, this role has been played by banks, which have the systems and expertise to function as withholding agents. Transferring these responsibilities to couriers and marketplaces not only creates operational challenges but also transforms these businesses into de facto tax enforcement entities. This policy shift blurs the regulatory boundary and increases operational risk for digital platforms under the looming threat of heavy fines for non-compliance.
Perhaps most alarming is the complete lack of a transitional framework or support mechanism. Small businesses are expected to immediately adapt by integrating with the FBR’s e-Bilty system, upgrading invoicing software, and hiring tax professionals. There is no grace period, no phased rollout, and no incentives to encourage compliance — only the stark ultimatum of full adherence or exclusion from the digital economy.
Rather than bringing informal businesses into the tax fold through incentives and education, these reforms risk driving many further underground or out of business altogether. E-commerce in Pakistan, already struggling with high costs and infrastructure challenges, may now face additional barriers to growth due to these poorly targeted reforms.
As Pakistan seeks to modernize its fiscal systems, policymakers will need to balance tax compliance with economic inclusion. Without a clearer understanding of how digital businesses operate, well-intentioned reforms could inadvertently stifle one of the country’s most promising sectors.
