Proposal foreign e-commerce salescharge payment intermediaries and couriers for goods bought online
On 10 June 2025, Pakistan’s Federal Minister for Revenue and Finance unveiled the federal budget for the fiscal year 2025–26. The budget introduces a range of significant tax measures aimed at strengthening revenue collection and improving compliance, particularly within the digital economy.
Introduction of Digital Transactions Proceeds Levy
A prominent feature of the budget is the proposed Digital Transactions Proceeds Levy, designed to expand the tax net to include digital commerce more effectively. This levy will apply to the proceeds generated by domestic vendors from:
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The sale of goods ordered through online platforms; and
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The provision of services delivered through digital means.
To ensure effective enforcement and minimize revenue leakage, banks and courier companies will be appointed as withholding agents. These intermediaries will be responsible for deducting the levy at the time of payment or delivery and remitting it to the tax authorities. This mechanism is intended to create a comprehensive compliance framework that covers the entire digital transaction lifecycle.
The introduction of this levy underscores the government’s strategic focus on aligning the tax system with evolving business models and enhancing transparency in digital trade.
Sales tax registration obligations
The Ministry also wishes to mandate the registration for sales tax by non-resident e-commerce sellers and marketplaces transacting with local consumers.
VAT / Sales Tax framework in Pakistan
Pakistan operates a VAT-type system under the Sales Tax Act, 1990, administered by the Federal Board of Revenue (FBR). Key features include:
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Standard Rate: The general sales tax (GST) rate is 18%, applicable to most goods and certain taxable services. However, provinces levy their own sales tax on services, typically ranging from 13% to 16%.
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Place of Supply Rules: For inter-provincial transactions, the place of supply is typically determined based on the location of service consumption. This can create jurisdictional challenges, particularly for digital services.
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Digital Economy Rules: Recent amendments empower the FBR to collect VAT on digital services and platforms, including those with no physical presence in Pakistan. Foreign digital service providers may be required to register for sales tax if they provide services to Pakistani consumers.
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Withholding Sales Tax Regime: Certain entities are required to act as withholding agents for sales tax purposes, deducting tax at the source when making payments to suppliers, especially unregistered ones. The new designation of banks and courier services as withholding agents for digital transactions aligns with this broader strategy.
