The budget saga is far from over. Pakistan has turned its eye squarely on the digital economy, proposing significant new levies. A new Digital Presence Proceeds Tax Act imposes levies on a wide range of online transactions, from local e-commerce to streaming services, in an effort to broaden the tax base. The budget outlines tiered transaction taxes (ranging from 0.25 to 2 per cent) and a two per cent sales tax on each transaction, as well as a five per cent withholding tax on payments to foreign online vendors.
Islamabad aims to capture revenue from booming online shopping and global tech firms. FBR Chairman Rashid Langrial, however, emphasises enforcement over new taxes to hit targets. Hefty penalties are also proposed. For example, a first-offence fine of Rs 500,000 applies to platforms and courier services handling sales by unregistered vendors.
Broadening the tax base is vital. No qualms about that. Tapping online commerce formalises business and raises revenues from Pakistan’s informal sector. This also aligns with global trends, as India, the UK, and the EU have adopted similar digital taxes. Yet, these new levies also burden consumers and small businesses. Requiring income and sales tax registration for every digital seller risks deterring small home-based and individual vendors. Freelancers earning from overseas and nascent startups may find the five per cent withholding tax on foreign payments equally onerous. Indeed, critics warn that such taxation will squeeze e-commerce margins, making many businesses unfeasible. Practical hiccups abound. Courier and logistics firms, now collecting taxes on cash-on-delivery sales, often lack systems or training. Without proper equipping, onerous penalties (including 100 per cent of the tax amount for violations) could unfairly punish small stakeholders. FBR admits this is a new frontier, planning track-and-trace systems. Lasting (not feel-good) success hinges on tax authority capacity, coordination with intermediaries, and global platform compliance.
It does not need be said that a balanced approach demands shoring up both human and institutional capacity. Pakistan suffers from a skills gap, with many lacking modern industry training. Therefore, online sellers and freelancers need support for tax compliance: digital literacy, simplified registration, and clear guidance. The government should partner with the industry leaders for workshops and helplines. Similarly, job creation cannot be stressed enough, especially when the unemployment rate stands at 11.1 per cent for the youth. Experts argue that encouraging digital entrepreneurship, through easing startup barriers and incubator support, drives youth employment. Tax policy must align with a broader strategy to nurture the IT and freelancing sectors.
Broadening Pakistan’s tax base to include e-commerce is both logical and inevitable, given rapid online growth. But it will succeed only if the state treads carefully. A modern, inclusive tax regime should strike a balance, ensuring everyone pays their fair share while supporting the very entrepreneurs creating jobs and innovation online. *