Save Tax Amount During Online Shopping In Pakistan.

Pakistan has recently introduced significant changes to its tax policy concerning online shopping and digital commerce, effective from July 1, 2025. These measures aim to broaden the tax base, increase revenue, and formalize the growing e-commerce sector

Key Updates on Pakistan's New Tax Policy for Online Shopping (till June 30, 2025):

• 18% Sales Tax on E-commerce Platforms: The Federal Board of Revenue (FBR) has finalized a proposal to impose an 18% sales tax on major online platforms like Daraz, OLX, Zameen, and PakWheels in the Finance Bill for 2025-26. This tax will apply to online buying and selling activities conducted through these platforms.

• Tiered Tax Structure for Local E-commerce Platforms: For transactions on local e-commerce platforms, a tiered tax structure has been introduced:

  • 1% for transactions up to PKR 10,000.

  • 2% for transactions under PKR 25,000.

  • 0.25% for amounts exceeding PKR 25,000.

• Digital Transactions Proceeds Levy: This new levy applies to both domestic and foreign vendors. Banks and courier services are designated as withholding agents to ensure tax collection throughout the payment chain.

• Taxes on Foreign Vendors and Digital Presence:

  • Foreign vendors with a "significant digital presence in Pakistan" will be charged a 5% tax on digitally ordered goods and services, whether delivered digitally or physically. Banks will deduct this tax from payments made to these vendors.

  • A new law, the "Digital Presence Proceeds Tax Act, 2025," specifically targets foreign companies like AliExpress, Temu, and Amazon that sell to Pakistani customers without a physical presence. Customers will be charged 5% of the amount paid to the vendor, collected by banks or payment gateways.

  • Foreign companies running social media advertisements in Pakistan (e.g., on Facebook, YouTube, Instagram) will also pay 5% tax on their gross ad spend. These platforms must file quarterly reports.

• Taxes on Cash-on-Delivery (CoD): Courier services involved in CoD transactions will be subject to new taxes:

  • 0.25% on electronics and electrical goods.

  • 2% on clothing articles.

  • 1% on other goods.

  • These taxes will be collected by courier services at the time of delivery.

• Mandatory Seller Registration: All online marketplaces, payment intermediaries, and courier services must file detailed statements with the Commissioner, sharing data of sellers. Additionally, all sellers using online platforms are now required to register under the Sales Tax Act, 1990. Online marketplaces will face penalties (up to PKR 1 million) if they allow unregistered vendors.

• Increased Withholding Tax: The withholding tax rate on e-commerce transactions has been doubled from 1% to 2%.

• Broadened Definition of E-commerce: The definition of "e-commerce" has been expanded to include all online transactions, regardless of whether they are paid via digital payments or cash on delivery, bringing them under the e-commerce sales tax framework.

• Penalties for Non-Compliance: Penalties for failing to deduct or remit appropriate taxes by banks, payment gateways, and courier services can be up to 100% of the tax involved. Fines for online marketplaces allowing unregistered vendors have also been significantly increased.

Smart Ways to Save Tax Amount During Online Shopping and Selling in Pakistan and Outside Pakistan:

It's crucial to understand that "tax saving" refers to legal methods of minimizing your tax liability, also known as tax avoidance. "Tax evasion," which involves illegal actions to avoid paying taxes, should never be considered.

Here are some smart strategies, keeping in mind the new regulations:

For Online Shopping (within Pakistan):

1. Prioritize Sales and Discounts: While taxes are increasing, retailers may offer sales and discounts to remain competitive. Keep an eye out for these promotions, especially during festive seasons or special events.

2. Understand the Tiered Tax Structure: For local online purchases, the tiered tax structure means smaller transactions might incur a higher percentage of tax. If you have multiple small purchases planned, consider if combining them could shift you into a lower percentage bracket, though this might not always be practical or beneficial, depending on the absolute amount.

3. Be Aware of Payment Method Impact (CoD vs. Digital): The tax rates for CoD vary by product category. Digital payments on local platforms have their own tiered structure. Compare the effective tax rates for your specific product and payment method to see if one offers a slight advantage, though the difference might be minimal.

4. Buy from Registered Sellers: The government is pushing for all online sellers to be registered. While this doesn't directly save you tax as a buyer, it ensures that your purchases are from legitimate sources compliant with tax laws, reducing potential issues.

5. Look for Tax-Inclusive Pricing: Some online platforms might display prices inclusive of all taxes. This helps you see the final cost upfront and avoid surprises.

For Online Selling (within Pakistan):

1. Register for Sales Tax and Income Tax: This is no longer optional. To legally sell online in Pakistan, you must register under the Sales Tax Act and the Income Tax Ordinance. Failure to do so will result in penalties for both you and the platforms you use.

2. Maintain Proper Records: Accurate and detailed record-keeping of all your sales, expenses, and inventory is crucial. This will help you correctly calculate your taxable income and claim eligible deductions.

3. Claim Input Tax: If you are a registered person, you can claim input tax on taxable goods and services you purchase for your business. This reduces your overall sales tax liability.

4. Understand Withholding Tax: Banks and courier services are now withholding agents. Ensure you understand how this works and that the correct tax is being withheld and remitted to the FBR. Reconcile these withholdings with your own tax records.

5. Utilize Tax Credits and Rebates (if applicable): Explore available tax credits and rebates under the Income Tax Ordinance, 2001. For example, investments in mutual funds or pension schemes can offer tax credits. Consult a tax advisor to see if any apply to your situation as an online seller.

6. Accurate Product Classification: Be precise in classifying your products for CoD transactions, as different categories have different tax rates. Misclassification could lead to incorrect tax collection.

For Online Selling (outside Pakistan from Pakistan):

1. Understand International Tax Laws and Treaties: Selling to international customers means dealing with the tax laws of both Pakistan and the destination country. Research any Double Taxation Treaties (DTTs) Pakistan has with the countries you are selling to, as these can help avoid being taxed twice on the same income.

2. Determine Your Tax Residency: Your tax residency in Pakistan will dictate how your global income is taxed. Generally, if you are a tax resident of Pakistan, your worldwide income is taxable in Pakistan.

3. Familiarize Yourself with the Destination Country's Import Duties and VAT/Sales Tax: The buyer in the destination country may be liable for import duties, customs fees, and local sales tax (like VAT or GST). Clearly communicate these potential costs to your international buyers to avoid disputes.

4. Consider Export Incentives (if any): Pakistan may have incentives or exemptions for exporters. Research these thoroughly with the FBR and the Ministry of Commerce.

5. Proper Documentation for Exports: Maintain meticulous records for all your export sales, including shipping documents, invoices, and proof of foreign exchange receipts. This is vital for FBR compliance and claiming any export-related benefits.

6. Consult a Tax Professional specializing in International Taxation: Given the complexity of international tax laws, it is highly advisable to consult with a tax advisor who has expertise in cross-border e-commerce and international tax regulations. They can help you navigate compliance requirements and identify legal tax minimization strategies.

7. Explore International Payment Gateways: Understand the tax implications of different international payment gateways. Some platforms might have built-in features to help with tax compliance for international sales.

In summary, the new tax policies in Pakistan are pushing for greater formalization and taxation of the digital economy. For both buyers and sellers, understanding these changes and adapting your practices accordingly is key. For sellers, diligent compliance and professional tax advice are more critical than ever.

Best regard
Zeeshan siraj.