Pakistan Axes Digital Tax on Oversea E-Commerce Transactions
Pakistan Introduces Digital Presence Tax on Foreign Online Retailers
Pakistan has taken a significant step towards modernizing its tax system by introducing the Digital Presence Proceeds Tax (DPPT) on foreign online retailers. The new tax policy, which came into effect on July 1, 2025, is a part of the Digital Presence Tax Act, 2025, and aims to level the playing field for local businesses and increase tax revenues.
The DPPT imposes a 5% withholding tax on foreign goods sold online, in addition to the existing 18% sales tax. This move aligns foreign digital sellers with domestic tax obligations, ensuring they contribute fairly to the national exchequer.
Historically, Pakistan's tax system lacked mechanisms to capture revenues from international digital commerce, allowing foreign platforms like Temu, AliExpress, and Amazon to operate tax-free despite significant Pakistani consumer spending. The new tax policy reflects Pakistan’s modernization efforts to adapt to the global digital economy by taxing transactions at the electronic payment level rather than relying on traditional customs inspections.
The policy also included lowering the customs de minimis threshold to 500 rupees to enhance transparency and reduce undocumented imports.
However, some exemptions were introduced for foreign tech firms regarding the 5% digital tax, though details suggest the tax largely remains applicable to foreign e-commerce platforms selling tangible goods. This move caused price hikes on popular foreign shopping platforms, triggering consumer concerns and debate about its economic impact, especially on Chinese platforms like Temu and AliExpress, which saw immediate price increases due to these new levies and customs duties.
The Pakistani national tax authority, the Federal Board of Revenue (FBR), enforces this tax to ensure foreign platforms contribute fairly to the national exchequer and domestic sellers do not face unfair competition at the cost of lost government revenue.
The withdrawal of the levy on goods and services ordered online and supplied from abroad, announced by the FBR, does not affect the taxability of such goods and services under the Digital Presence Proceeds Tax Act 2025. The withdrawal is expected to provide relief to international retailers operating in Pakistan's national cyberspace.
Until the implementation of the new budget, foreign e-commerce platforms were selling to Pakistani consumers through social media without being subjected to local tax laws. The government aims to collect over Rs14 trillion ($49.3 billion) in taxes in the current fiscal year, with the aim being to meet targets set under the $7 billion International Monetary Fund loan program.
In summary, the DPPT represents a significant shift in Pakistan's tax policy towards the digital economy, signaling readiness to enforce digital-era taxation aligned with global trends. The withdrawal of the levy on goods and services ordered online and supplied from abroad is a retrospective implementation, meaning it will apply to goods and services ordered online and supplied from abroad before and including the 1st day of July, 2025.
In the wake of the Digital Presence Tax Act, 2025, foreign online retailers are now subjected to a 5% withholding tax on sales, in addition to the existing 18% sales tax. This move also covers transactions on foreign platforms like Temu, AliExpress, and Amazon, which were previously operating tax-free.
In an effort to adapt to the global digital economy, the new tax policy in Pakistan hopes to increase tax revenues and level the playing field for local businesses. The policy advancements extend to the technology sector, signifying a modernization effort towards digital taxation.
Although certain tech firms were granted some exemptions, the new 5% digital tax primarily targets foreign e-commerce platforms selling tangible goods. The introduction of this tax has led to price hikes on popular shopping platforms, generating consumer concerns about its economic impact.
