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Online shoppers in Pakistan have been shocked to see a dramatic increase in the prices of products listed on international platforms such as Temu and AliExpress. Following the announcement of Pakistan’s Federal Budget 2025–26, prices of some items have increased by up to 300–400%, leaving many wondering what triggered such an unexpected surge.
However, a closer look reveals that while new tax measures have played a role, they are not solely responsible for the significant price hike.
What the New Taxes Actually Are
Under the new budget, the Government of Pakistan introduced a Digital Presence Proceeds Tax Act, aimed at regulating international e-commerce activity targeting Pakistani consumers. This act imposes a 5% tax on goods sold from foreign platforms into Pakistan.
In addition to this, these platforms are now subject to the 18% General Sales Tax (GST)—the same rate that domestic businesses in Pakistan are required to pay. This move is an attempt to create a level playing field between local manufacturers and international sellers who previously operated tax-free.
Until now, companies like Temu and AliExpress sold products directly to Pakistani consumers without paying any local taxes, giving them a clear advantage over local sellers.
Why the Price Hike Exceeds the Tax Rate
Despite the introduction of a combined 23% tax (5% digital tax + 18% sales tax), prices on these platforms have surged far beyond this rate—often increasing three to four times.
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Analysts believe that this is not a direct consequence of the tax policy alone. Instead, the drastic price hikes may be a precautionary measure taken by these platforms. The sudden changes in Pakistan’s tax structure, coupled with ambiguity over enforcement and compliance, have likely prompted platforms like Temu and AliExpress to inflate prices preemptively to safeguard against any unforeseen duties, penalties, or future costs.
Comparison With Local Businesses
The new taxation framework is also intended to bring foreign e-commerce firms on par with Pakistani manufacturers, who have long complained about unequal treatment. A local manufacturer not only pays 18% sales tax but also faces an income tax of up to 35%, making it challenging to compete with foreign platforms that previously paid nothing.
By imposing these new taxes, the government aims to increase fairness in the market and boost local production.
Temporary Spike? Prices Might Normalize Soon
While consumers are currently grappling with unusually high prices, experts suggest that the hike could be temporary. As the situation becomes clearer and regulatory guidelines are better defined, platforms may adjust their pricing strategies accordingly.
This kind of volatility is common during transitional phases, especially when global platforms face sudden regulatory changes in a local market.
Government’s Broader Goals
These tax measures are part of a broader fiscal strategy aimed at expanding Pakistan’s tax base and generating revenue from the digital economy. The move also responds to growing pressure from local businesses and policymakers demanding greater accountability and tax parity from international companies operating digitally within Pakistan.
The Digital Presence Proceeds Tax Act marks a significant shift in how cross-border e-commerce is regulated and taxed in Pakistan.
