Banks to act as WHT agents: ‘Digital levy’ introduced in Pakistan

KARACHI: The federal government has introduced “Digital Transactions Proceeds Levy” along with necessary changes in Income Tax Ordinance, 2001 to cover domestic vendors supplying digitally ordered goods and digitally delivered services. Banks and courier services have been designated as withholding agents to capture entire payment chain.

According to budget proposal for the next fiscal year (FY26), all online marketplaces, payment intermediary and courier service will be required to file a statement to Commissioner sharing data of sellers involved in digitally ordered goods and digitally delivered services. As per new measurers online marketplace will also be responsible to get registered all sellers using their platform in e-commerce.

In addition, in as significant shift aimed at tightening tax compliance across the booming digital market places, bank and other financial institution will now responsible for collecting sales tax on digital transactions.

Is the budget changing how government views e-commerce?

The federal government has introduced the definition of ‘e-commerce’ to broaden the tax net to include all online transactions, whether paid via digitally or cash on delivery (CoD).

Aimed to better incorporate digitally ordered taxable goods into the e-commerce sales tax framework, the definition of ‘e-commerce’ has been introduced, and ‘online marketplace’ is redefined to include all taxable activities.

Currently, online marketplaces are required to withheld 1 percent sales tax on local supplies made by non-active taxpayer vendors. However, this does not fully capture the growing e-commerce sector, especially businesses using websites, apps etc for online sales to consumers.

To address this, the withholding tax scope has been expanded to cover transactions settled via online payment or CoD.

Under the proposed regime, substituting S. No. 8 of the Eleventh Schedule, payment intermediaries including banks, financial institutions, exchange companies, and payment gateways will collect sales tax on digital payments, while couriers will handle tax collection for CoD transactions.

Additionally, the government has also proposed to double the withholding tax on e-commerce transaction. Withholding tax rate is set to increase from 1 percent to 2 percent.

Copyright Business Recorder, 2025