Taxation of E-Commerce Businesses in Pakistan

The rise of digital commerce has transformed how goods and services are bought and sold in Pakistan. From online marketplaces and retail websites to dropshipping and social media selling, e-commerce has become a major economic sector. Recognizing its rapid growth, the Federal Board of Revenue (FBR) and provincial tax authorities have created tax laws specifically to regulate and monitor e-commerce businesses. This article provides a detailed overview of the tax obligations, compliance framework, applicable rates, and audit risks related to e-commerce businesses in Pakistan.

What Qualifies as an E-Commerce Business?
An e-commerce business is any entity that sells goods or services online, including:

• Online sellers using platforms like Daraz, Amazon, Shopify

• Businesses with their own websites for direct-to-consumer sales

• Dropshipping and print-on-demand stores

• Social media sellers using WhatsApp, Facebook, or Instagram

• Online resellers using courier and cash-on-delivery (COD) models

• Marketplaces acting as intermediaries (e.g., Foodpanda, Airlift)

As per Section 2(43A) of the Income Tax Ordinance, 2001, “e-commerce” means the sale or purchase of goods, services, or property through an online platform or digital network.

Income Tax Obligations for E-Commerce Businesses

1. Registration with FBR
All e-commerce businesses must:

• Obtain a National Tax Number (NTN)

• Register on the FBR e-portal

• Update their business profile under “e-commerce” classification

2. Tax Status
E-commerce sellers may operate as:

• Sole Proprietors (individual)

• AOPs (Association of Persons)

• Private Limited Companies (registered with SECP)

3. Tax Rates (FY 2025)

4. Minimum Tax (Section 113)
If the business declares a loss or minimal profit, a minimum tax of 1.25% of turnover applies.

5. Advance Tax (Section 147)
Quarterly advance tax must be paid based on estimated annual income.

6. Turnover-Based Presumptive Tax for Non-Filers
Certain marketplaces deduct turnover tax at 2%–4% from sellers who are not active taxpayers (ATL).

Withholding Taxes for E-Commerce Sellers

1. Daraz and Similar Platforms
Online platforms like Daraz deduct withholding tax from sellers under Section 153:

• 4.5% on sale of goods

• 10% on services

2. Bank Transactions
FBR monitors bank accounts and may apply:

• 0.6% WHT on cash withdrawals by non-filers

• Investigation into COD deposits and online transactions

Sales Tax on E-Commerce Transactions

1. Federal Sales Tax (GST)

• 17% sales tax applies on goods sold through online stores

• Must be collected and deposited monthly via STRN (Sales Tax Registration Number)

2. Provincial Sales Tax on Services
Applicable in case of:

• Delivery services

• Software and digital service providers

• Sellers acting as marketplaces (intermediaries)

3. Sales Tax Registration Threshold
If annual turnover exceeds Rs. 3 million, sales tax registration becomes mandatory.

Export of Goods and IT Services
If an e-commerce business exports:

• Products via Amazon, Etsy, etc.

• IT services via Shopify, Fiverr, etc.

Then:

• Export income may be exempt from sales tax

• 80% of income may be exempt from income tax (Section 154A) if registered with PSEB

Filing and Compliance Requirements

1. Income Tax Return

• Due by September 30 (individuals) or December 31 (companies)

• Includes business income, expenses, and tax computation

2. Sales Tax Return

• Filed monthly via FBR or provincial portal

• Even if no sales, a nil return must be filed

3. Withholding Statements

• Monthly filing of Form 45 (for tax deducted on payments to vendors or freelancers)

4. Wealth Statement

• Mandatory if income exceeds Rs. 1 million

• Must reconcile income with assets and bank transactions

E-Commerce Business Expenses Allowed for Deduction

• Website hosting and development

• Domain registration and software

• Digital advertising (Facebook, Google)

• Courier and logistics expenses

• Packaging, warehousing, and office rent

• Payment gateway charges (e.g., Payoneer, Stripe fees)

These must be documented and paid through bank transfers for deduction to be allowed.

Penalties for Non-Compliance

FBR E-Commerce Audit and Monitoring
FBR uses digital tools to track:

• Marketplace transactions (Daraz, Shopify)

• Bank accounts and COD deposits

• Facebook/Google Ad spend

• Customs records (for import/export sellers)

Businesses found unregistered or underreporting can be:

• Added to the Active Taxpayer List (ATL) forcibly

• Issued automated tax notices

• Audited and penalized

Role of Marketplaces and Payment Processors

1. Daraz, Foodpanda, Bykea:

• Act as withholding agents

• Must deduct and deposit tax on behalf of sellers

2. Payoneer and Wise:

• FBR recognizes these as foreign inflows

• Require Foreign Inward Remittance Certificates (FIRC)

3. JazzCash & EasyPaisa Sellers:

• All sales and collections must be reported

• FBR may trace based on mobile wallet data

Tax Planning Tips for E-Commerce Businesses

• Always register for NTN and Sales Tax early

• Maintain clean banking records and expense documentation

• File returns on time to avoid notices or blacklisting

• Register with PSEB for IT/exports to claim tax exemption

• Keep COD income reconciled with bank deposits

FAQs on E-Commerce Taxation

Q. Do I need to register for tax if I sell on Facebook or WhatsApp?
A. Yes. All business income, regardless of platform, is taxable.

Q. Is my Amazon income taxable in Pakistan?
A. Yes. Even foreign income is taxable for Pakistan residents.

Q. Do I need sales tax registration if I sell through Daraz?
A. Yes, if annual turnover exceeds Rs. 3 million.

Q. Can I claim expenses like ad spend and delivery costs?
A. Yes, if paid through bank and properly documented.

Q. What if I don’t file a return?
A. You face penalties, tax notices, and may be disqualified from ATL.

Conclusion
E-commerce taxation in Pakistan has evolved to bring digital sellers, resellers, and platforms into the formal economy. Whether selling through Daraz or Shopify, or running a dropshipping store from home, businesses must register with FBR, file tax returns, pay sales tax, and maintain compliance with withholding rules. While the framework may seem complex at first, staying compliant helps avoid penalties, builds credibility, and unlocks incentives available to IT and export-based sellers. As digital audits increase, the safest route is full disclosure, proper recordkeeping, and timely filing.