Commercial Banks Seek Delay in New E-Commerce Tax Deduction Policy
KARACHI — Commercial banks in Pakistan have requested a temporary deferral on the implementation of the government’s new tax deduction policy for e-commerce gateways and merchants, citing the lack of an automated mechanism to manage these deductions effectively.
According to banking sector insiders, financial institutions are currently not deducting any taxes from e-commerce operators or merchants, as the infrastructure for automated tax collection has not yet been developed.
Tax Challenges in the Digital Economy
The government recently introduced new tax measures targeting digital transactions, aiming to increase revenue from the rapidly expanding e-commerce industry. The policy includes withholding taxes ranging from 2% to 5% on both local and international e-commerce platforms.
While the policy does exempt foreign online sellers and social media advertising, banks are still grappling with how to implement deductions from domestic digital payments.
“An overnight implementation of tax collection isn’t feasible,” said one official. “While some e-commerce platforms may collect taxes directly from customers, banks themselves currently lack the technical capacity to do so.”
Industry Seeks Regulatory Support
In response, several banks have approached the State Bank of Pakistan (SBP) via the Pakistan Banks Association (PBA) to request a grace period for compliance. This would allow time to develop the required digital systems and infrastructure to ensure smooth implementation.
Banking officials emphasize that the collection of withholding tax through e-commerce gateways is particularly complex, and systems must be robust to ensure accurate and timely deductions.
E-Commerce Growth Poses Urgent Need
Pakistan’s e-commerce sector is expanding rapidly, with more than 10,000 registered e-commerce operators and a sharp rise in digital transactions. In Q3 of FY25, the SBP reported:
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213 million digital payments processed
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40% increase in transaction volume
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34% increase in transaction value, reaching Rs. 258 billion
These figures underscore the importance of developing a reliable tax deduction mechanism to align with the government’s revenue goals and ensure compliance without disrupting digital commerce.
