- FBR to subject non-profit organizations to stricter scrutiny, requiring proof of non-commercial activities for tax exemptions, with regular performance reviews
Federal Board of Revenue (FBR) Chairman Rashid Mahmood Langrial said that the tax on digital platforms has been imposed after serious concerns from the formal retail sector regarding the unequal tax burden. The formal retailers are required to pay both sales tax and income tax on goods sales, while online businesses have largely remained untaxed. This new measure is aimed at addressing these discrepancies and ensuring a level playing field.
The FBR chief emphasised that this move is essential to ensure that the growing e-commerce sector, which has been largely unregulated, complies with the country’s tax laws.Â
“The formal retail sector is paying all kinds of taxes, while undocumented online businesses engaged in selling goods are paying no taxes,” he said. “This initiative will bring the digital economy into the tax fold, creating a more equitable environment for all businesses.”
Langrial explained that the tax will apply to digital platforms, including online marketplaces, websites, and mobile apps facilitating the sale of goods within Pakistan. Under the new framework, a 2% tax will be levied on the gross value of supplies made via these platforms. The measure will apply to both local suppliers and transactions made via digital payments or Cash on Delivery (CoD).
The FBR has already started integrating sales tax-registered businesses into the digital economy framework through authorized integrators like Pakistan Revenue Automation Limited (PRAL).Â
This move follows concerns raised by the All Pakistan Retail Association, which warned that the growing informal sector is putting the formal sector at a disadvantage, with the retail sector facing an 18% sales tax while digital sellers avoid taxes.
In addition to these measures, the Finance Bill 2025 also includes an expansion of the withholding tax framework. Online marketplaces will now be required to withhold a 1% sales tax on local supplies made by non-active taxpayer vendors, a tax system that previously did not fully capture the rapidly growing e-commerce market.
This expansion will ensure that transactions settled through digital payments or cash on delivery (CoD) are subject to sales tax collection, with payment intermediaries such as banks and payment gateways responsible for tax deductions.
The FBR chairman also noted that the withholding tax rate would increase from 1% to 2% under the new regulations, further tightening compliance.Â
Additionally, penalties for non-compliance have been introduced, with significant fines for online platforms and courier services that fail to deduct and remit taxes on digital transactions. A first-time violation would incur a fine of Rs500,000, while subsequent defaults could result in fines of up to Rs1 million.
Alongside these measures, the FBR has also targeted under-invoicing on the import of goods such as chocolates, pet food, and cereal bars by including them in the Third Schedule of the Sales Tax Act. This is part of a broader effort to tackle tax evasion and ensure that all sectors, including the digital economy, contribute fairly to the nation’s tax revenue.
Langrial also addressed concerns over non-profit organizations (NPOs) receiving tax exemptions under the Finance Bill, stating that NPOs would now be subject to stricter scrutiny. These organizations will be required to prove that they are not engaged in commercial activities if they wish to avail tax exemptions, with the FBR planning to conduct regular reviews of their performance.
The government’s efforts to strengthen enforcement and expand the tax net through digital platforms are part of a larger push to improve Pakistan’s tax collection and reduce reliance on informal economic activities. With these reforms, the FBR aims to bring greater transparency, accountability, and fairness to the tax system, while supporting the growth of the formal economy in the digital age.
