Govt explores taxing online shopping in upcoming budget

The government is exploring various options to introduce taxation on online shopping in the upcoming fiscal year 2025-26 budget as part of efforts to expand the tax base and boost revenue, The News reported.  

E-commerce, which has become an integral part of daily life for many upper and middle-income households in urban areas, has been identified as a potential source for increasing tax collection. 

The Federal Board of Revenue (FBR) is considering implementing a general sales tax (GST) on e-commerce transactions, with a provision allowing a 3% deduction by the delivery service on cash-on-delivery orders. The remaining 15% GST would be collected by manufacturers and incorporated into the product’s price.

The move comes as the government seeks to align its fiscal policies with the International Monetary Fund (IMF) program, which includes curbing expenditures and increasing tax revenues to reduce the budget deficit to 5.1% of GDP for the next fiscal year. 

Despite previous efforts, successive governments have struggled to bring millions of retail businesses into the tax net. The incumbent government’s Tajir Dost Scheme also failed to attract retailers, prompting a shift in focus to the growing e-commerce sector. 

The FBR is also exploring other tax collection mechanisms, including taxing online purchases made through debit or credit cards, as they are currently exempt from federal excise duties (FED) on local sales, although international payments are taxed.

A recent study by the FBR highlighted the growing trend of online shopping in Pakistan’s urban centres, which is expected to continue expanding. The FBR’s proposal includes requiring online platforms and marketplace operators to collect and remit sales tax on behalf of the government. 

However, this idea has faced resistance from tax experts, who argue that taxing the e-commerce sector at this stage could hinder its growth.