New taxes on digital transactions spark backlash

ISLAMABAD: With the unveiling of new taxes on digital transactions and e-commerce in the budget, the government has moved towards protecting domestic retailers but compromising its vision to incentivise the cashless economy.

Aamir Ibrahim, Chairman Telecom Operators Association of Pakistan, voiced both hope and concern in a tweet, warning that the measures could slow down Pakistan’s journey toward a cashless economy.

On the other hand, the telecom and IT industry leaders expressed concerns that the PM Office was preparing vision for cashless economy but the budget made them disappointed.

They pointed out that many major retailers still refuse to accept digital payments in order to hide real income and evade taxes, indicating that enforcement against such practices remains insufficient. This gap, they argued, allows tax evasion to persist and undermines efforts to bring more transactions into the formal, documented economy.

The Pakistan Software Houses Association (P@SHA) also expressed disappointment, warning that neglecting key demands from the IT sector and introducing inconsistent tax policies could stall export growth, threaten jobs, and send a negative signal to global investors about Pakistan’s digital ambitions.

Similarly, the Overseas Investors Chamber of Commerce and Industry (OICCI) also criticised the government for missing a crucial opportunity to broaden the tax base and document the country’s vast Rs9 trillion cash-based informal economy.

In a statement, the OICCI noted that while measures like the nationwide rollout of e-invoicing and expansion of POS systems are positive steps, the absence of a concrete strategy to address the informal sector and rationalise tax structures undermines efforts to create a more investment-friendly environment and advance economic formalisation.

“The budget aims to formalise online trade through digital integration and tax measures, which is a plus,” said Aamir. “However, complexity in tax collection, the 5pc levy on digital transactions with foreign vendors, and additional taxes charged by payment intermediaries risk increasing costs and discouraging digital adoption. Making digital payments more prevalent, easier, and affordable is essential for Pakistan’s growth and for documenting the economy. Let’s ensure policies support a truly digital Pakistan, driving transparency and compliance without undue burdens.”

The new finance bill introduces taxes on both local and foreign e-commerce marketplaces, making online shopping costlier for Pakistani consumers. Notably, a 5pc tax will be imposed on goods purchased from foreign online marketplaces such as AliExpress and Amazon, collected by banks and payment gateways at the point of transaction.

Meanwhile, local digital payments will face a tiered tax structure, ranging from 1pc to 2pc depending on the transaction amount, and courier companies will collect taxes on cash-on-delivery payments.

Banks and courier services have been designated as withholding agents, required to collect and remit these taxes, and file detailed statements on all digital transactions. Online marketplaces must also ensure that all vendors are registered for sales tax, tightening compliance across the sector.

Aamir acknowledged the government’s intent to bring more online activity into the formal economy but cautioned that the added complexity and cost could push some businesses and consumers back toward cash and informal channels. “We need to strike a balance between expanding the tax net and fostering digital inclusion. If digital transactions become more expensive or cumbersome, we risk undermining the very progress we’ve made in financial inclusion and digital transformation.”