Federal ministers propose revision in e-commerce taxation framework to support SMEs

Federal ministries for Commerce and Information Technology & Telecommunication have jointly proposed to revise taxation framework announced for the e-commerce sector in the budget for the financial year 2025-26.

Finance Minister Muhammad Aurangzeb announced Pakistan’s federal budget 2025-26 “for a competitive economy” on Tuesday, targeting a modest 4.2% growth for the coming fiscal year, compared to 2.7% expected in the outgoing FY25.

In the budget proposals, the government also announced to impose taxes on e-commerce, for which the federal ministers, Jam Kamal Khan and Shaza Fatima Khawaja called for a revision to support the country’s e-commerce sector and small and medium-sized enterprises (SMEs).

The two ministers discussed aspects covering e-commerce at a high-level meeting, aiming to “address key issues in Pakistan’s rapidly expanding e-commerce sector,” according to press statement issued by the Ministry of Commerce on Thursday.

Is the budget changing how government views e-commerce?

Aurangzeb announced to impose 18% sales tax on sales of goods to be sold by e-commerce platforms.

“The rapid growth of online businesses and digital marketplaces has created challenges for traditional businesses which comply with tax laws. To ensure a level playing field and full compliance with tax regulations, it is proposed that courier and logistics service providers delivering on behalf of e-commerce platforms collect 18% sales tax from these platforms and deposit it accordingly,” he said.

According to Finance Bill 2025, Pakistan’s Finance ministry proposed 0.25% to 2% tax “on payment for digitally ordered goods or digitally delivered services through e-commerce platforms including websites…”

The tax would also be collected on payments made in cash on delivery by courier services, it added.

Details suggest the consumer will pay 1% of gross amount to be paid upto Rs10,000 payment via digital platforms including online banking and mobile banking. They are liable to pay 2% of the gross amount to be paid in range of Rs10,001 to Rs20,000. The rate of tax would be 0.25% of the gross amount exceeding Rs20,000, according to the bill.

Similarly, consumers would pay 0.25% of gross amount on receipt of electronic and electrical goods in case of cash on delivery. They would pay 1% of the gross amount on delivery of clothing articles, apparels, garments etc. And the tax rate would be 1% of the gross amount on cash on delivery if consumers bought other than clothing articles and electronic goods, as per the budget proposals.

“Pakistan’s e-commerce sector has witnessed rapid growth, reaching a market size of $7.7 billion in 2024, with projections estimating a 17% compound annual growth rate through 2027, the Commerce ministry statement read.

Key highlights of Pakistan budget for 2025-26

In line with the consultative approach of the forthcoming e-commerce 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 group’s findings will be formally presented to the prime minister for final consideration.

Minister Kamal also confirmed that eCommerce Policy 2.0 was in its final stages of internal review and would soon be submitted for cabinet approval.

The finance bill elaborated that “e-commerce” means sale or purchase of goods and services conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders either through websites, mobile applications or online marketplace having digital ordering features by using mobile phones, automated computer-to-computer ordering system or any similar device.