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Pakistan’s government has introduced tax on online shopping and Cash on Delivery (CoD) transactions as part of the Budget 2025-26. The aim is to expand the tax net and boost revenue from the rapidly growing e-commerce sector.
Previously, online marketplaces were required to withhold 1% sales tax on local supplies from non-active taxpayer vendors. The new measures broaden this scope and increase the withholding sales tax rate.
The withholding sales tax rate on e-commerce transactions has been doubled from 1% to 2%. The scope of withholding tax has been specifically expanded to cover transactions settled via online payments and, notably, Cash on Delivery (CoD).
Payment intermediaries such as banks, financial institutions, exchange companies, and payment gateways will be responsible for collecting sales tax on digital payments.
DEDUCTION FOR DIGITAL PAYMENTS
| Amount paid less than rupees ten thousand | 1% of the gross amount paid |
| Amount paid between rupees ten thousand to rupees twenty thousand | 2% of the gross amount paid |
| Amount paid over rupees twenty thousand | 0.25% of the gross amount paid |
Courier companies will collect the tax for CoD transactions.The definition of “e-commerce” has been formally introduced, and the term “online marketplace” has been redefined to encompass all taxable activities within the sector.
DEDUCTIONS OVER CASH ON DELIVERY
| On electronic goods | 0.25% of the gross amount paid |
| On clothing articles, apparels, garments etc. | 2% of the gross amount paid |
| On goods other than above mentioned | 1% of the gross amount paid |
The government’s move is driven by the need to capture revenue from the burgeoning digital economy. E-commerce has become a significant part of daily life, particularly in urban areas, and has been identified as a promising sector for increased tax collection. These measures are also aligned with broader efforts to meet fiscal targets and potentially secure agreements with international financial institutions like the IMF.
