Pakistan forms body to review e-commerce tax policy after new budget measures
The budget, announced on June 10, imposes a tiered taxation structure on digital transactions. For payments under Rs10,000 ($35), a 1 percent tax will be applied. Payments between Rs10,000 and Rs20,000 ($71) will face a 2 percent tax, while transactions above Rs20,000 will be taxed at 0.25 percent. Courier services will collect the tax for cash-on-delivery orders, and payment gateways will deduct it for online payments.
The measures have raised concerns among businesses about increased compliance burdens and costs for online consumers.
'In line with the consultative approach of the forthcoming policy, Minister Kamal Khan announced the formation of a joint working group with input from the IT Ministry to gather comprehensive recommendations on taxation, vendor compliance and digital payments,' the commerce ministry said in a statement after a meeting between Commerce Minister Jam Kamal Khan and IT Minister Shaza Fatima Khawaja.
'The group's findings will be formally presented to the prime minister for final consideration,' it added.
'Minister Kamal also confirmed that e-commerce policy 2.0 is in its final stages of internal review and will soon be submitted for cabinet approval.'
Pakistan's e-commerce sector has grown rapidly, reaching a market value of Rs2.17 trillion ($7.7 billion) in 2024, according to the ministry of commerce. The sector is expected to expand at a compound annual growth rate of 17 percent through 2027, driven by increased smartphone penetration, digital payments, and logistics infrastructure.
The new tax framework has triggered concern among industry stakeholders, particularly small and medium-sized enterprises (SMEs), which dominate Pakistan's online retail sector. Analysts say the measures could slow growth and hinder innovation in a sector seen as key to the country's digital transformation.
In comparison, regional tax regimes vary.
India applies a 1 percent Tax Collected at Source (TCS) on e-commerce sellers under its Goods and Services Tax (GST) framework, while Bangladesh introduced a 5 percent VAT on local digital services in 2022. Sri Lanka levies a 2.5 percent Value Added Tax on online purchases, with additional withholding tax for certain platforms.
Globally, the European Union imposes VAT on cross-border e-commerce transactions, with rates ranging from 17 percent to 27 percent, while US states apply sales taxes ranging between 0 percent and 10.25 percent, depending on jurisdiction.
Pakistan's e-commerce policy 2.0, once finalized, is expected to address regulatory gaps and streamline the digital business environment, which has so far operated under fragmented taxation and compliance rules.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Arab News
an hour ago
- Arab News
Pakistan pushes ahead with agri bank privatization under IMF-backed reform plan
KARACHI: The government on Thursday appointed a consortium of financial advisers for the sale of Zarai Taraqiati Bank Limited (ZTBL), a state-owned agricultural lender, according to an official statement. The decision, made during a meeting of the Privatization Commission (PC) Board chaired by Muhammad Ali, Adviser to the Prime Minister, signals the government's intent to fast-track key transactions under its broader economic reform program. The board approved the selection of a consortium led by Next Capital Limited, which ranked highest among six qualified bidders. 'ZTBL is among the priority transactions in the current privatization pipeline. The appointment of a top-tier consortium of FAs [financial advisers] reflects the government's strong commitment to executing the process in a professional, transparent and timely manner,' the Privatization Commission said in a statement. Pakistan's privatization program, long encouraged by the International Monetary Fund (IMF) under various loan arrangements, is aimed at reducing fiscal losses from poorly performing state-owned enterprises (SOEs), improving governance and boosting private sector participation. The IMF has repeatedly called for structural reforms, including divestment from commercial entities, to ease pressure on public finances and strengthen the country's economic outlook. Alongside the appointment, the PC Board also approved the formation of a Negotiation Committee to finalize the Financial Advisory Services Agreement (FASA) with the selected consortium. Other shortlisted bidders included major consortiums led by Arif Habib Limited, A.F. Ferguson, AKD Securities, Bridge Factor and JS Bank. ZTBL provides agricultural credit and rural banking services across Pakistan. Its privatization is seen as part of a broader effort to reform the financial sector and reduce the state's commercial footprint.
Arab News
2 hours ago
- Arab News
Utility Stores employees vow resistance as government plans shutdown from July 10
ISLAMABAD: The Utility Stores Corporation (USC) employees' union on Thursday vowed to resist the government's decision to shut down retail operations by July 10, saying it would fight for the rights of over 11,000 workers by initiating protests, sit-ins and legal action. Established by the government in 1971, the corporation has a nationwide chain of retail outlets that provide essential commodities to the general public at prices lower than those in the open market. The corporation took over 20 retail outlets at the beginning but now operates 6,000 stores across the country. The government allocated Rs65 billion ($229.7 million) to subsidize the products sold by the retail chain in the last fiscal year. One of its spokespersons confirmed to Arab News the corporation's public retail stores will be closed by July 10, adding that all operations will shut down by the end of the month. 'We have received instructions from the Ministry of Industries and Production to close down all the stores by July 10, shift remaining goods to warehouses and completely shut down operations by July 31, 2025,' Sajid Marwat, USC Public Relations Officer, said. Meanwhile, Arif Shah, Secretary General of the All Pakistan Workers Alliance of Utility Stores, said the union will use all available avenues to protect the corporation and its employees. 'We will pursue both options, challenging the decision in court and staging on-ground protests including a sit-in at the [USC] headquarters,' he told Arab News. 'In total, around 17,000 people — including 11,500 direct employees of Utility Stores, 2,000 to 2,500 vendor staff and 3,000 franchise store workers from 1,000 to 1,200 outlets — will be affected by the closure,' Shah said, adding the authorities had already terminated around 4,100 employees. He maintained the institution has remained in existence for 55 years, and shutting it down was not the government's sole prerogative. 'If it is truly necessary to close this institution, the decision should be approved by parliament,' he said. Shah noted that during emergencies and disasters, the corporation stood at the forefront to provide relief items and ensure food security due to its big presence all over the country. He pointed out if the government was determined to shut it down, then at the very least, the employees should be given a fair and respectable voluntary separation scheme (VSS) package to help absorb the financial shock. Asked about the possibility of offering such a proposal, USC spokesperson Marwat said a human resource committee would convene on Friday to review the issue in consultation with union representatives and the management. 'The union is not accepting the current terms as they are demanding compensation packages for everyone, including daily wage laborers and contractual staff, as all categories of workers are being affected,' he informed, adding that the government was considering a financial deal for regular employees. Under the package for regular staff, the government is planning to offer two or three month of basic salary. 'But based on mutual consultations, the committee will prepare a comprehensive package for the outgoing employees,' he added. Raja Miskeen, a USC employee for over two decades, termed it completely wrong to shut down Utility Stores, saying it would put the livelihood of thousands of employees like him and their families at risk. 'We are waiting for the official written order, after which we will challenge this move in court,' he told Arab News. 'We are also in contact with our unions, urging them to develop a joint strategy that includes protests, sit-ins in the federal capital and legal action,' he added. Miskeen said the employees have dedicated many years to the corporation, adding that it had been functioning well. 'We are not against restructuring or improving its operations, but a complete shutdown is simply unacceptable,' he added. Ayesha Anwar, a regular customer at the USC in Islamabad's G-6 sector, said she had been shopping at Utility Stores for years, as their quality goods and subsidized rates had always helped stretch her household budget. 'Sugar at the store costs Rs164 per kilogram [$0.58], while in the open market it is around Rs200 [$0.71]. Similarly, price differences exist for other essential items as well,' she said, adding that closure of these stores would deeply affect the public, especially low-income families.
Arab News
8 hours ago
- Arab News
Pakistan PM orders doubling of digital payment targets to boost cashless economy
ISLAMABAD: Prime Minister Shehbaz Sharif has ordered the doubling of all key digital economy targets, including mobile-based payments, QR code adoption, and overall transaction volumes, as part of Pakistan's push to accelerate its transition to a cashless economy, his office said on Thursday. The directive comes as authorities aim to increase mobile payment users from 95 million to 120 million, and QR code-enabled merchants from 0.9 million to 2 million. The total value of digital transactions is expected to rise from Rs7.5 billion ($26.9 million) to Rs12 billion ($43 million), according to figures shared in a meeting chaired by Sharif on Thursday. A statement released after the discussions did not provide a timeline for meeting these targets. Sharif said the targets were not ambitious enough and must be doubled across the board to match the scale of Pakistan's digital transformation agenda. 'A digital transaction system is essential for bringing transparency to the economy,' Sharif said. 'It is an urgent need of the hour to ease payments between citizens and businesses and raise awareness about the use of digital systems.' Pakistan, a country of over 240 million people, has a vast informal economy and low tax compliance. The government has long identified digitization as a key tool to improve governance, reduce corruption, and expand the country's narrow tax base. Three committees — the Digital Payments Innovation and Adoption Committee, the Digital Public Infrastructure Committee, and the Government Payments Committee — have already been formed to oversee the transition. At Thursday's meeting, Sharif directed the bodies to present 'workable proposals in collaboration with all stakeholders,' the statement said. The State Bank of Pakistan is developing strategies to simplify digital transactions for traders, including special incentive packages for small businesses. The government also plans to expand the use of digital mobile apps and improve access to digital public infrastructure. Sharif was also briefed on new services set to launch soon, including e-stamping, as well as public Wi-Fi expansion across hospitals, schools, parks, government offices and metro lines in Islamabad. He instructed officials to roll out these facilities across all federal territories, as well as Azad Jammu and Kashmir and Gilgit-Baltistan.
