In Pakistan, e-commerce businesses are taxed under the Income Tax Ordinance, 2001, and Sales Tax Act, 1990. These laws apply to all types of e-commerce businesses, including those selling products or services online.
Income Tax for E-Commerce Businesses:
An e-commerce business is required to register with the Federal Board of Revenue (FBR) and obtain a National Tax Number (NTN) to pay income tax on its profits. The income tax rate for e-commerce businesses is the same as that for other businesses, which is currently 29% for companies and 31% for sole proprietors.
In addition to income tax, e-commerce businesses are also required to pay a 0.5% turnover tax if their annual turnover exceeds PKR 50 million (approximately USD 320,000). The turnover tax is levied on the gross amount of sales made during the year, regardless of whether the business made a profit or not.
Sales Tax for E-Commerce Businesses:
E-commerce businesses are also required to register for sales tax with the FBR and obtain a Sales Tax Registration Number (STRN). The sales tax rate for e-commerce businesses is currently 17% on the value of goods and services sold.
However, there are some exemptions for small e-commerce businesses. If the annual turnover of an e-commerce business is less than PKR 5 million (approximately USD 32,000), it is exempt from sales tax. Additionally, if an e-commerce business is exporting goods or services, it is also exempt from sales tax.
Let’s take a look at some examples to better understand the tax implications for e-commerce businesses in Pakistan:
XYZ is an e-commerce business that sells clothing online. It has an annual turnover of PKR 10 million (approximately USD 64,000). XYZ is required to register for income tax and pay tax on its profits at the rate of 29%. It is also required to register for sales tax and charge its customers 17% on the value of the clothing sold.
ABC is an e-commerce business that provides freelance writing services online. It has an annual turnover of PKR 3 million (approximately USD 19,000). ABC is exempt from sales tax as its turnover is less than PKR 5 million. However, it is required to register for income tax and pay tax on its profits at the rate of 31%.
PQR is an e-commerce business that sells handicrafts online. It exports its products to other countries and has an annual turnover of PKR 20 million (approximately USD 128,000). PQR is exempt from sales tax as it is exporting its products. However, it is required to register for income tax and pay tax on its profits at the rate of 29%.
In conclusion, e-commerce businesses in Pakistan are subject to income tax and sales tax, just like other businesses. They are required to register with the FBR, obtain a National Tax Number and Sales Tax Registration Number, and pay taxes on their profits and sales. The tax rates and exemptions vary based on the annual turnover and nature of the e-commerce business. Therefore, it is important for e-commerce businesses to comply with the tax laws and regulations to avoid penalties and legal consequences.