Earlier this week, the federal government announced the budget for the upcoming fiscal year of 2025/26. The salaried class and government employees were among notable beneficiaries, while many industries could incur losses due to an increase in solar panel taxes and fuel costs.
However, several e-commerce changes were also proposed to enhance Pakistan’s digital economy. These adjustments have implications for both online sellers and consumers. In fact, foreign vendors, like Temu, Amazon and others, were also not spared.
International and Local Online Shopping Platforms in Line of Fire
The finance minister, Muhammad Aurangzeb, proposed a tiered sales tax system on online purchases via local platforms, e.g. Daraz.pk and OLX. A 1% tax will be imposed on purchases below Rs 10,000. For payments between Rs 10,000 and Rs 25,000, a 2% tax will be imposed.
Surprisingly, purchases above Rs25,000 will be taxed at a reduced rate of 0.25%. Furthermore, purchases made from foreign vendors, e.g. Temu and Amazon, will be subject to a 5% tax.
For those digital ads targeting Pakistani consumers, foreign vendors will have to pay a 5% advertising tax.
Banks will be required to deduct the taxes imposed on purchases via local and international online shopping platforms. In addition, GST registration has been mandated for all vendors. Unregistered vendors selling goods and services online will be subject to heavy fines (between Rs500,000 and Rs1 million.
What does this mean for Online Shoppers and Sellers?
Consumers should expect notable hikes in their purchases on online platforms as the overall cost of digital services and goods increases. The same platforms are likely to include a detailed breakdown of the sales tax in the checkout receipts.
This would lessen the purchasing power of many, but it causes more problems for the immobile, aged, and infirm who find it difficult to shop physically. Furthermore, discounts and special offers that you see all over right now are likely to decline as these vendors struggle to maintain steady profits.
As for the new compliance demands levied on vendors, home-based sellers and small-scale businesses which rely on online purchases are likely to bear the brunt. Stricter regulations on these vendors could impede the growth of such small set-ups, especially those with unsteady earnings.
This was the first time the government laid a strong emphasis on the digital market, imposing new taxes. While this would certainly enhance tax revenue, rising costs and the collapse of small home-based set ups presents unique challenges that the government failed to tackle.
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