In a major step toward bringing e-commerce retailers into the tax net, the Federal Board of Revenue (FBR) has made tax deduction and registration mandatory for online transactions.
According to details, the FBR has introduced a new procedure for the registration of e-commerce sellers and collection of taxes on digital transactions.
These measures are part of a broader effort to bring the retail market under the tax net and ensure full enforcement of taxation on digitally ordered goods and services.
The FBR has issued Income Tax Circular No. 1 and Sales Tax Circular No. 2, aimed at streamlining the allocation of National Tax Numbers (NTNs) to e-commerce retailers and implementing an effective withholding tax system.
Under the new system, all payments for goods or services ordered digitally through online marketplaces (OMPs) or websites will fall within the tax ambit, and domestic e-commerce transactions will be taxed under Section 6A.
Amendments to Section 153(2A) now require payment service providers — including banks, financial institutions, foreign exchange dealers, and digital gateways — to deduct 1 percent tax on e-commerce transactions, while couriers handling cash-on-delivery (COD) must deduct 2 percent tax before remitting payments to sellers.
These different rates are part of the government’s efforts to promote digital payments and move the economy towards a cashless system.
Tax collected under Section 6A will be treated as final tax on both domestic and export income of sellers.
Payment intermediaries and courier services will be responsible for collecting this tax, depositing it each month into the national treasury under the seller’s name, and submitting the corresponding withholding tax statements.
Under the new system, income tax registration is now legally mandatory for e-commerce sellers.
OMPs and courier services are prohibited from providing services to unregistered sellers.
OMPs are also required to submit to the FBR periodic statements containing details of all sellers operating on their platforms.
Penalties have been introduced for failure to register or deduct taxes, applicable to those OMPs and courier services that do not comply with the requirements.
In cases of COD through e-stores or mobile apps — whether aggregators, OMPs, or direct delivery providers — the responsibility for tax collection and reporting rests with the courier service, regardless of whether the seller operates through an OMP or independently.
Within the sales tax framework, couriers have been designated as withholding agents to cover taxable activity in the e-commerce sector.
The government has also tightened sales tax enforcement.
Under Section 3(7A), tax collected through couriers and intermediaries on digitally ordered goods will be treated as the final liability for cottage industries and non-Tier-1 retailers, with no input tax allowed.
Other businesses will continue to operate under the normal sales tax regime, where the deducted tax may be adjusted against their output tax.
Amendments to Sections 14(1A) and 14(1B) now require all e-commerce sellers — including foreign entities selling goods digitally in, or from, Pakistan — to register and comply under the sales tax framework.
Furthermore, under amendments to Section 26, OMPs, payment intermediaries, and couriers must submit monthly sales tax statements, detailing payments, tax information, and other relevant data in respect of sellers, covering all domestic digital transactions.
These changes have been introduced to improve tax compliance in the e-commerce sector and support the government’s transition towards a digital economy.
