E-Commerce Industry Urges Govt to Rework Harsh Tax Measures in Budget

The Chainstore Association of Pakistan (CAP) and the Pakistan E-Commerce Association (PEA), together with a broad coalition of e-commerce stakeholders—including formal sector retailers, freelancers, online sellers, marketplaces, courier services, payment providers, and digital platforms—have called on the government to adopt practical revisions to the proposed tax and compliance measures in the Finance Bill 2025–26. Pakistan’s e-commerce sector has grown by over 35 percent annually during the past five years. Currently, more than 100,000 micro and small online sellers are operating across the country, supporting incomes for over a million people. The total market size is estimated at Rs. 2.2 trillion ($7.7 billion), which remains under 2 percent of the national GDP and lags behind regional peers. While stakeholders support fair taxation and documentation, they warn that the proposed measures risk severely disrupting both established and small businesses by placing an excessive compliance burden without any transitional phase. The coalition believes that the design and immediate implementation of the new tax regime will stifle digital entrepreneurship, particularly among youth and women. They have welcomed the proposed 5 percent digital presence levy on offshore platforms like Temu and support enhanced data reporting requirements for the sector. However, they emphasize that these gains should not be undermined by impractical tax compliance obligations. The Finance Bill proposes multiple new taxes and complex procedures affecting all components of the digital ecosystem, introduced without consultation or a phased rollout. Industry leaders caution that the current top-down approach resembles the previously failed “Tajir Dost” scheme, which collapsed due to poor design and lack of stakeholder engagement. CAP, the official trade body for organised retail, notes that the proposed regulations place a disproportionately heavier burden on the e-commerce sector compared to the traditional retail and wholesale sectors. Rather than promoting formalisation, these measures could drive businesses back into informality or force them to shut down entirely. Key concerns include the blanket 2 percent sales tax withholding without allowing for input adjustments, mandatory sales tax registration for all online merchants, including home-based sellers, income tax withholding at six different rates ranging from 0.25 percent to 2 percent, and penalties of up to Rs. 500,000 on platforms, couriers, and sellers. The immediate enforcement of these measures from July 1st, without any transition period, further intensifies industry apprehensions. The coalition recommends limiting the 2 percent sales tax withholding to non-ATL (unregistered) sellers only, requiring only income tax registration for small and home-based sellers instead of complex sales tax processes, applying a single 0.25 percent withholding tax rate across the board, rationalising penalties, and reforming provincial taxes on essential digital services such as online advertising and hosting. They also urge the government to allow a two- to three-month transition period to prepare the ecosystem. Industry leaders have appealed directly to the Prime Minister, the Finance Minister, the Commerce Minister, and the Federal Board of Revenue (FBR) to pause the immediate enforcement of these measures and initiate structured dialogue with stakeholders. They reiterated their commitment to collaborating on tax reforms that support both compliance and digital growth, stating that the future of Pakistan’s digital economy depends on pragmatic, inclusive policymaking.