Operational expenses of Pakistan's e-commerce sector increase due to implemented taxes
The Pakistani government's recent implementation of a new tax regime on courier services under the Finance Bill 2025 has imposed a 2% withholding tax and a 2% sales tax on Cash on Delivery (COD) items handled by courier companies [1][2]. This move aims to bring digital sellers into the formal tax net by enforcing tax registration for e-commerce sellers, linking their shipment processing and delivery to mandatory sales tax and income tax registration with the Federal Board of Revenue (FBR) [1][2].
The policy is part of a broader strategy to capture revenue from the fast-growing digital economy and e-commerce sector, including taxes on foreign digital vendors and a "Digital Transactions Proceeds Levy," targeting a revenue collection goal of Rs64 billion for the fiscal year [4]. The government views this policy as a way to formalize the e-commerce sector and widen the tax base by holding courier companies accountable for tax collection due to their access to seller invoices [1][3].
However, this new tax regime has significant implications for Pakistan's e-commerce sector and small businesses. Increased operational costs due to the hike in delivery charges have made logistics one of the biggest expenses for e-commerce businesses [1][2][3]. The pressure on profit margins, especially for small and medium-sized enterprises (SMEs) that rely heavily on COD sales and operate on thin margins, is a major concern [3].
While large e-commerce marketplaces might absorb some cost increases, SMEs will likely have to pass on these additional expenses to consumers, possibly leading to higher prices and reduced competitiveness compared to offline retail, which may not face similar tax burdens [3]. Compliance requirements, such as mandatory tax registration for sellers, add administrative hurdles that could disproportionately affect smaller players unfamiliar with tax formalities [1][2].
Usman Akhtar, a Lahore-based e-commerce entrepreneur, expressed concerns over the new taxes, stating that thousands of budding online sellers are negatively impacted. The Pakistan E-commerce Association (PEA) president, Omer Mubeen, has warned that the new tax measures would shrink profit margins and put an additional burden on customers [5].
One-time sellers and women selling goods from their homes will be exempted from mandatory registration under the new e-commerce tax rules. Mubeen proposed that the 2% withholding tax should be waived for registered merchants, and he recommended introducing a nominal 0.25% income tax for compliant sellers to ease their financial burden and encourage documentation and digitisation [5].
Akhtar argued that Pakistan's short-term revenue-driven approach threatens long-term growth potential in the e-commerce sector. He suggested that the government should analyze the market trends of e-commerce growth in Pakistan and review its decision to end taxes on online businesses for the next five years [5].
References: [1] Dawn, (2025). New tax on courier services to impact e-commerce sector. [online] Available at: https://dawn.com/news/1636173 [2] The News, (2025). E-commerce industry to bear brunt of new taxes. [online] Available at: https://www.thenews.com.pk/print/857398-e-commerce-industry-to-bear-brunt-of-new-taxes [3] The Express Tribune, (2025). New courier tax policy to impact e-commerce sector. [online] Available at: https://tribune.com.pk/story/2363822/new-courier-tax-policy-to-impact-e-commerce-sector [4] The Express Tribune, (2025). Budget 2025-26: Government targets Rs64bn from e-commerce sector. [online] Available at: https://tribune.com.pk/story/2363452/budget-2025-26-government-targets-rs64bn-from-e-commerce-sector [5] The Express Tribune, (2025). E-commerce entrepreneurs voice concerns over new taxes. [online] Available at: https://tribune.com.pk/story/2363823/e-commerce-entrepreneurs-voice-concerns-over-new-taxes
- The Pakistani government's new tax regime, targeting the e-commerce sector and courier services, intends to formalize the market and widen the tax base, aiming to capture revenue from the fast-growing digital economy.
- The policy imposes a 2% withholding tax and a 2% sales tax on Cash on Delivery (COD) items, increasing operational costs for e-commerce businesses and putting pressure on profit margins, particularly for small and medium-sized enterprises (SMEs).
- One-time sellers and women selling goods from their homes are exempted from mandatory registration under the new e-commerce tax rules, but the Pakistan E-commerce Association (PEA) president, Omer Mubeen, recommends waiving the 2% withholding tax for registered merchants and introducing a nominal 0.25% income tax for compliant sellers.
- E-commerce entrepreneur, Usman Akhtar, argues that Pakistan's short-term revenue-driven approach could threaten the long-term growth potential in the e-commerce sector and suggests analyzing the market trends of e-commerce growth in Pakistan and reviewing the decision to end taxes on online businesses for the next five years.
