New taxes on courier services hike costs for Pakistan’s e-commerce sector

The cost of doing business for Pakistan’s e-commerce sector has risen significantly following the implementation of new taxes on courier services under the Finance Act 2025. Industry stakeholders report that logistics, a major expense for online sellers, has seen a sharp increase due to the 2% withholding tax and 2% sales tax on Cash on Delivery (COD) transactions.

As per reports, courier companies have begun deducting these taxes from online sellers, as required by the new regulations set by the Federal Board of Revenue (FBR). The FBR has designated courier companies as tax collection agents, given their role in handling invoices and serving as intermediaries between sellers and buyers.

The Pakistan E-commerce Association (PEA) chairman, Omer Mubeen, warned that these new tax measures would erode profit margins and burden consumers further. 

Online sellers, who often reduce their margins to offer discounts and free delivery to attract customers, now face limited options compared to physical retail stores that pay no such taxes.

While large e-commerce platforms might absorb some of the increased costs, small and medium-sized enterprises (SMEs) are expected to pass the financial burden onto consumers to remain viable. 

The PEA chairman also pointed out that the rising costs of taxes, fuel, and utilities, such as electricity, gas, and internet, are further squeezing profit margins.

He urged the government to provide a transition period for sellers to complete tax registration, and suggested waiving the 2% withholding tax for registered merchants. He also proposed a nominal 0.25% income tax for compliant sellers to ease their financial strain and promote greater tax documentation and digitization.

Courier companies have begun advising businesses to register with tax authorities in order to continue using their services. Sellers without proper registration will not be able to process or ship orders through these companies. However, one-time sellers and women selling goods from their homes will be exempt from the mandatory registration requirements.

Estimates indicate that over 100,000 micro and small online sellers are active in Pakistan, contributing to a market worth Rs2.2 trillion ($7.7 billion). Despite rapid growth, e-commerce still represents less than 2% of Pakistan’s GDP, lagging behind regional peers.