LAHORE: The Federal Board of Revenue (FBR) has set September 1, 2021 as the effective date for the withholding of two percent sales tax by online marketplaces.

The collection against this withholding of sales tax would be carried out under SRO No 984(I)/2021 issued last week.

An “online marketplace”, as defined in clause 38B of section 2, includes an electronic interface such as a marketplace, e-commerce platform, portal or similar means which facilitate the sale of goods, including third-party sales. A person running an “online marketplace” is proposed to be made responsible to collect sales tax on goods being traded through such a portal, whether or not such goods are owned by him.

It may be noted that the federal government had proposed a sales tax of 17 percent on online marketplaces in the federal budget for the fiscal year 2021-22. However, this budget proposal had gathered strong criticism from the stakeholders, saying that this would give rise to an increase in unregistered sellers. Also, keeping in view the level of documentation in Pakistan economy, there is a need to effectively utilise the online marketplace and similar platforms for gathering information for undocumented business sector instead of imposing tax on such platforms under the garb of sales tax provisions, they stressed. Accordingly, the federal government had subsequently withdrawn it after giving due consideration to the contentions of the online marketplace operators.

The Board has replaced it with the application of 2% withholding of the gross value of supplies from persons other than active taxpayers.

Copyright Business Recorder, 2021