Commercial banks in Pakistan have asked the government to delay the implementation of tax deductions on e-commerce payment operators and merchants introduced under the new tax rules. According to insiders, banks currently face technical and operational challenges in enforcing these deductions.
Banks Struggle to Implement Tax Deduction Systems
Sources from the banking sector revealed that no taxes are currently being withheld from e-commerce businesses because banks lack an automated system to handle these new tax deductions. The government recently introduced multiple taxes targeting digital payment transactions to boost revenue from the rapidly growing e-commerce market, applying rates between 2% to 5% on payments made through both local and foreign platforms.
However, banks say developing a mechanism to automatically deduct these taxes from e-commerce operators’ payments is not something that can be done immediately. “It’s a complex process to build this infrastructure, and right now, banks are not equipped to deduct taxes directly from payment operators,” a bank official explained. Some e-commerce companies might instead collect these taxes from their customers themselves, but this is not yet a standardized or foolproof solution.
Banking Regulators and Industry Seek a Breather
Officials from several banks have reportedly approached the State Bank of Pakistan (SBP) via the Pakistan Banks Association (PBA) to request a temporary suspension or deferral of these tax deductions. The goal is to allow banks sufficient time to develop and implement reliable systems for tax collection without disrupting digital commerce.
While banks acknowledge the need for tax compliance, they emphasize the operational hurdles in quickly rolling out withholding tax mechanisms on the booming e-commerce sector.
Rapid Growth in E-commerce Poses Both Opportunity and Challenge
The timing of these tax measures coincides with a significant surge in online transactions. The SBP reports nearly 10,000 e-commerce operators currently registered with banks, and over 213 million digital payment transactions were recorded in just the third quarter of fiscal year 2025. This marks a 40% jump in transaction volume and a 34% increase in transaction value, reaching Rs. 258 billion.
This rapid growth highlights the potential for increased government revenue from the sector but also underscores the complexity of enforcing new tax policies on a swiftly evolving digital economy.
Tax Exemptions for Foreign Sellers and Social Media Ads
Interestingly, while domestic e-commerce payments face new taxes, the government has exempted foreign online sellers and social media advertising from these levies. This selective approach could have implications on competitiveness and revenue collection going forward.
In summary, commercial banks in Pakistan are urging the government to delay the rollout of tax deductions on e-commerce payments due to practical difficulties in system readiness. With the sector expanding rapidly, a balanced approach may be needed to ensure tax compliance without disrupting digital commerce growth.
