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ISLAMABAD – August 2025: Commercial banks have formally requested a deferral of the newly imposed tax deductions on e-commerce payment operators and merchants, citing the absence of an automated tax deduction mechanism, sources told ProPakistani.
The government, as part of the Federal Budget FY2025-26, imposed multiple taxes ranging between 2% to 5% on digital payments processed through local and foreign e-commerce platforms. The move is aimed at broadening the tax base and increasing revenue from Pakistan’s booming digital economy.
However, sources within the banking sector confirmed that commercial banks are currently not deducting any tax from e-commerce operators due to the lack of backend systems to automate the process.
“Banks could not develop any system overnight that deducts taxes from e-commerce operators. It’s still a work in progress,” said a banking official familiar with the situation. “In the meantime, an e-commerce company may collect taxes directly from customers.”
Banks Approach Regulator for Relief
According to industry insiders, officials of various banks approached the State Bank of Pakistan (SBP) via the Pakistan Banks Association (PBA), requesting a temporary suspension or deferral of the tax enforcement until a proper mechanism is implemented.
“Banks are actively working to build the required system,” said another official. “However, at this stage, withholding taxes directly from e-commerce platforms remains a major operational challenge.”
Currently, most banks lack the infrastructure to automatically deduct taxes from payment operators and merchants, raising concerns about compliance and audit risks.
Government’s Digital Tax Policy
In its recent budget, the government announced new taxation measures targeting online trading, including taxes on payments processed through e-commerce gateways and platforms. However, the tax on foreign sellers and social media ads was withdrawn following feedback from stakeholders.
The Federal Board of Revenue (FBR) was expected to enforce the policy immediately, but pushback from the banking sector has slowed its implementation.
E-Commerce on the Rise
According to State Bank of Pakistan (SBP) data, more than 10,000 e-commerce operators are registered with local banks. The sector has witnessed explosive growth in recent months.
During the third quarter of FY2024-25, Pakistan recorded over 213 million digital payment transactions, marking a 40% year-on-year increase in volume and a 34% increase in transaction value, reaching Rs. 258 billion.
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This surge in digital transactions underscores the importance of tax regulation in the sector, while also highlighting the practical difficulties of enforcing such policies without proper infrastructure.
The Road Ahead
Banking officials emphasize that compliance is not a question of willingness but of readiness. They are calling on the government to allow sufficient lead time for technical upgrades and procedural alignment.
Until then, e-commerce companies may bear the interim responsibility of managing tax deductions themselves or issuing invoices with appropriate tax breakdowns, though this also presents logistical and legal challenges.
Conclusion:
While the government’s intent to tax the digital economy is clear, the success of its policy depends heavily on banking infrastructure readiness and coordination with payment operators. Until systems are in place, stakeholders are urging the government to defer tax enforcement to avoid disruption in the fast-growing e-commerce sector.
