Is the budget changing how government views e-commerce?
- Some experts say the recognition of tech, e-commerce, and digital trade in the tax net suggests the government is beginning to take this segment seriously
Perhaps the more important takeaway from today’s budget for startups was the digital transactions proceeds levy - a 5% withholding levy that will be applied to payments made to domestic and international digital vendors - as well as an 18% e-commerce tax.
A formal definition of “e-commerce” has been introduced for the first time, while the term “online marketplace” has been broadened to include all taxable activities conducted through digital platforms, including websites and mobile applications.
The startup world has reacted differently to this news.
Mutaher Khan, co-founder of Data Darbar, said: “Basically, the only major change with respect to startups is this taxation regime around e-commerce. They are trying to bring marketplaces into the withholding tax regime.”
According to him, “the problem is that this is based on revenue. For marketplaces, what they’re earning is not really the gross merchandise value, which is what the tax is based on, instead of the actual earning income. Tax is based on net income or profit before tax. So that’s the first distortion”.
He also pointed out that the government is not only outsourcing the tax collection to banks who are used to it, but also to courier companies “who have never done this before.”
“Banks might still have the bandwidth, but banks are not the only gateway providers. Gateway is also done by non-banks, which are typically much smaller in size. Now they have to look after withholding, and then we have courier companies who have never done this in the past, and now there’s an added cost to it.”
He added that e-commerce prices on average are slightly higher than what one would find for comparable goods in the physical retail market, and now they will become pricier.
“And now the government wants the e-commerce companies and courier companies to share data with them around the tax collection and the sales. I don’t know how that will be executed.”
On the other hand, Hanzala Raja, founder and CEO of beauty platform Highfy was upbeat about the policies.
He told Business Recorder that “the focus on digitization, formalizing the undocumented sector, and streamlining compliance through one-window operations are encouraging steps, especially for small businesses and startups that have long struggled with bureaucratic complexity.”
According to him, “this budget signals a promising shift in how the government views the digital and entrepreneurial economy. “
He also believes the recognition of tech, e-commerce, and digital trade in the tax net suggests the government is beginning to take this segment seriously, which is a “necessary first step toward more tailored policymaking.”
“As a platform working closely with hundreds of brands and partners, we see how fragmented policies and regulatory uncertainty can slow growth. A unified approach to digital taxation and clearer SOPs for online commerce would go a long way in building trust and long-term value across the ecosystem,” he said.
“That said, the real opportunity lies in following through with simplified tax regimes for early-stage businesses, easier access to financing, and policy support that extends beyond major cities,” he added.
He said “Pakistan’s startup ecosystem has shown that it can innovate at speed and scale. With the right public-private collaboration, we can turn that potential into long-term economic value.”
“This budget is a start and we’re hopeful it leads to more consistent engagement with the startup community in the years to come,” he concluded.
Meanwhile Adnan Ali, CEO and Director at PayFast, explained that taxing digital platforms may increase costs for end-users on e-commerce, digital services and streaming.
He said the move will broaden the tax base by capturing digital and cross-border revenue previously escaping the FBR, which promotes equity by bringing foreign digital platforms and COD sales into the tax net.
However, he said many international digital platforms do not use local payment gateways, which means implementation will be a challenge.
“It’s important to provide clarity in operational rules, especially regarding credit card transactions routed through international gateways,” he said.
Tax burden remains major challenge
Moving away from the digital transactions proceeds levy, Nauman Sikandar Mirza, founder of customer engagement platform Mergn and former CEO of foodpanda Pakistan, believes the tax burden on the salaried class is one of the biggest challenges faced by startups. He told Business Recorder he was disappointed by the measures announced by the finance minister.
Mirza said: “the developers and employees who work at at a tech startup like ours, they don’t fall in the bracket of people who are getting tax reliefs.”
“I was really hoping for some relief so that both employees and businesses get some kind of cushion. But for startups like ours, there will be no positive impact”.
He explained that the tax burden on the salaried class is already a challenge for all companies, and especially so for startups who have a small team and our trying to function in a “distressed economic situation”. These companies then struggle to give their employees a competitive salary.
Adnan Siddiquie, COO of health tech company EZShifa said that for startups, more than specific policies, it is the overall stability and security that they bring because that is what matters to investors.
“The first thing investors ask me is what is the security situation in Pakistan and will policies have conitinuity.”
As far as this is concerned, he said “I think the government has done the best they could given the dire situation we are in”.
However, he added that he does not have any expectations from the government, not because he thinks they don’t want to help, but because they have limited resources.
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