Pakistan announces reversal of digital tax on foreign online retailers to stimulate growth in the e-commerce industry.
The Pakistani government has announced a significant policy change, deciding to roll back the digital tax on foreign retailers. This decision, effective from July 1, 2025, exempts foreign digital services from the Digital Presence Proceeds Tax [2][4].
This move comes amidst pressure from the International Monetary Fund (IMF) and an aim to support the growth of the e-commerce sector. The decision benefits freelancers, startups, and online consumers by reducing the tax burden on foreign digital services, potentially encouraging broader digital economic activity [2].
However, the rollback has sparked backlash from local retailers, including small businesses and established retailers. The removal of the five percent levy on foreign goods has the potential to create an uneven competitive environment between local businesses and international digital retailers [3]. This could challenge the market position of local retailers, raising concerns about fair competition.
According to the Chainstore Association of Pakistan (CAP), foreign platforms, primarily those belonging to China, are sending as many as 30,000 parcels daily to Pakistani consumers, up from just 1,000 two years ago [1]. The government's decision to withdraw the digital proceeds levy appears to have been heavily influenced by trade talks with the US [5].
Economist Shankar Talreja expressed concern that the withdrawal of the digital tax encourages the use of imported products at the expense of domestic manufacturing [6]. He stated that foreign goods bypass regulatory burdens while local products are taxed through sales and income levies [6]. Talreja agreed with the CAP chairman that the government reversed the tax under pressure from trade talks with the US [7].
Asfandyar Farrukh, Chairman of the CAP, questioned the timing and motivation behind the policy reversal, linking it to Pakistan's recent trade negotiations with the United States [4]. Authorities are now more vigilant in ensuring that foreign e-commerce goods aren't under-invoiced to evade taxes at import [8].
Finance Adviser Khurram Schehzad stated that the government plans to continue expanding the e-commerce sector by keeping the market open to international players [9]. Talreja also pointed out that stricter customs enforcement may temper some of the impact of the tax withdrawal [7].
It's important to note that the Pakistani retail sector generates an estimated Rs20 trillion ($71 billion) annually, with only 10 percent coming from the tax-compliant formal sector represented by the CAP [10]. The retail sector includes about five million shops [11].
In response to requests for comment, neither Temu, Shein, nor AliExpress could be reached, and these companies did not respond [1]. The duty-free threshold for imported parcels has been reduced from Rs5,000 ($18) to Rs500 ($1.8) [1].
The implications of this decision are far-reaching, and while it aims to boost the e-commerce sector, it raises critical questions about support for local retailers and the long-term economic balance between domestic and foreign digital commerce [3][4].
- The rollback of the digital tax on foreign retailers could potentially stimulate growth in the art, business, and technology sectors of Pakistan, as the e-commerce sector expands.
- However, this decision may create an imbalanced competitive environment in the news and finance sectors, as local retailers, including small businesses, might struggle against foreign digital retailers.
- The policy change also raises questions about cultural preservation, as increased imports of foreign goods may lead to a decrease in the production and consumption of locally made items.
