Commercial banks across Pakistan have called on the government to temporarily defer the enforcement of new tax deductions on e-commerce gateway operators and merchants, citing the absence of an operational mechanism to process such taxes effectively. The request comes after the announcement of new taxation measures targeting digital payments in the federal budget for FY25.
According to sources within the banking industry, no commercial bank has initiated tax deductions from e-commerce merchants or platforms thus far. This is largely due to the lack of an automated infrastructure capable of implementing such a policy on short notice. While the government aims to expand its revenue base through increased taxation on digital transactions, banks argue that rolling out such a system requires time and technical development.
The recently announced tax policy imposes taxes ranging from 2 to 5 percent on digital transactions conducted via local and international e-commerce platforms. However, the same budget notably rolled back certain taxes on foreign-based online sellers and advertisements on social media platforms, further complicating the implementation landscape.
In meetings facilitated by the Pakistan Banks Association (PBA), banking officials have approached the State Bank of Pakistan (SBP) and other regulatory authorities, requesting a deferral period. This would allow banks sufficient time to build and test automated systems capable of tax deduction at the payment source for digital platforms.
Banking officials suggest that while individual e-commerce companies may be able to collect taxes from their customers directly, banks are not currently equipped to carry out withholding responsibilities for these merchants. The creation of a tax collection system tailored for digital payments is underway, but the process is not immediate, a source familiar with the matter explained.
According to SBP data, Pakistan currently hosts nearly 10,000 e-commerce operators registered through the banking system. During the third quarter of FY25 alone, e-commerce activity witnessed a significant boom, with more than 213 million digital transactions recorded. This surge marks a 40 percent year-on-year increase in volume and a 34 percent jump in value, totaling Rs. 258 billion in online payments for the quarter.
This sharp uptick in digital activity has undoubtedly drawn the government’s attention toward monetizing the sector. Yet, the operational readiness of the financial ecosystem remains a critical barrier. Without the requisite digital infrastructure and regulatory clarity, banks argue that immediate enforcement could create confusion, disrupt services, and harm compliance efforts.
Industry insiders believe that collaboration between tax authorities, the central bank, and commercial banks is crucial to ensure a smooth and equitable rollout of any tax mechanism for the digital economy. Until then, stakeholders continue to push for a temporary suspension of the tax deduction policy, hoping to align policy intentions with technological feasibility.
As Pakistan’s digital economy continues to expand, striking the right balance between regulation and operational preparedness will be vital in ensuring sustainable and efficient growth.
