The cost of doing business for Pakistan’s rapidly growing e-commerce sector has surged following the imposition of new tax measures on courier services under the Finance Act 2025, raising alarms among industry stakeholders.
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According to the Pakistan E-commerce Association (PEA) and independent sellers, the Finance Act has introduced a 2% withholding tax and a 2% sales tax on cash-on-delivery (COD) transactions, which dominate over 90% of Pakistan’s online orders.
Courier Companies Become Tax Collectors: The Federal Board of Revenue (FBR) has designated courier companies as tax collection agents, requiring them to deduct and deposit taxes on behalf of e-commerce sellers, as they handle seller invoices and cash flows. In effect, delivery companies have started deducting these taxes from payments owed to online sellers, triggering concern among small businesses.
“This will shrink already tight profit margins and directly burden customers,” warned Omer Mubeen, Chairman of the Pakistan E-commerce Association. “It’s another blow to digital businesses that are already battling inflation, rising utility costs, and low consumer confidence.”
SMEs Hit Hard, May Shift Burden to Customers: While large e-commerce platforms may absorb some of the financial hit, small and medium-sized online sellers (SMEs) — which form the backbone of Pakistan’s digital commerce — will be forced to either raise prices or reduce services like free delivery to survive.
Online sellers typically slash their own margins to offer competitive pricing. Unlike brick-and-mortar retail shops, which often pay no formal taxes, e-commerce sellers now face a heavier, formal compliance burden.
Entrepreneurs like Usman Akhtar, who runs an online business in Lahore, say the new tax policy could derail digital entrepreneurship. “Thousands of students, freelancers, and young professionals have launched online ventures with limited capital. This sudden tax load and the complex registration process could wipe out their efforts,” he said.
Sector Calls for Relief, Registration Incentives: To ease the transition, the PEA has proposed a waiver of the 2% withholding tax for registered merchants, and instead suggested a nominal 0.25% income tax to promote documentation and digital inclusion. Mubeen urged the government to provide a grace period for tax registration, especially for new and small sellers.
Courier companies are now advising sellers to complete their tax registration or face disruptions in delivery services. Under new rules, unregistered sellers will not be allowed to use courier or online marketplace platforms. However, one-time sellers and women selling goods from home will remain exempt from mandatory registration, providing some relief for informal micro-entrepreneurs.
A Sector with High Growth, Low Policy Support: Despite its potential, Pakistan’s e-commerce sector remains under-supported by policy, stakeholders say. According to industry estimates:
- Pakistan’s e-commerce market has grown over 35% annually in the past five years.
- The total market size is estimated at Rs2.2 trillion ($7.7 billion).
- The sector supports over 100,000 active micro and small sellers, indirectly providing income to more than a million people.
Yet, e-commerce still represents less than 2% of the national GDP, placing Pakistan far behind regional peers like India and Bangladesh in digital commerce penetration.
“Instead of encouraging digital businesses with tax holidays or startup incentives — like other countries — our policymakers seem more focused on short-term tax collection,” Akhtar added. “This approach may generate revenue, but it stifles long-term growth and innovation.”
Industry leaders are urging the government to reconsider its taxation strategy, and introduce e-commerce-friendly reforms that promote transparency without penalizing small sellers.
