ISLAMABAD, July 1, 2025 – The Government of Pakistan, through the Finance Act 2025, has rolled out a new Withholding Tax (WHT) regime for local e-commerce transactions. This move aims to enhance transparency and bring Pakistan’s growing digital economy under the tax net.
The new WHT applies to sellers of both physical and digital goods and services, but only if the transaction occurs within Pakistan and payment is received through local means such as bank transfers, digital wallets, or courier-based COD (Cash on Delivery).
E-commerce (Electronic Commerce) refers to the online buying and selling of goods and services. This includes:
- Websites or marketplaces like Daraz, Homeshopping, and local Shopify stores
- Social media-based stores using platforms like Instagram, Facebook, and TikTok
- Local digital service providers such as designers, tutors, and consultants
- Delivery apps or courier-based online stores
Note: These rules apply only to domestic transactions. Sales or services involving international payments or clients remain outside the scope of this WHT regime.
What Goods and Services Are Covered?
If you are selling or providing services within Pakistan and receiving payment locally, WHT applies to:
- Physical products (clothing, electronics, food, home goods)
- Digital goods (eBooks, software, design templates)
- Local services (consulting, designing, training, legal work)
- Bank or COD payments from Pakistani clients
- Income received in local currency through a Pakistani bank or courier service
Excluded from WHT:
- Export of goods or services
- Freelance income from Fiverr, Upwork, or Payoneer
- Any transaction where payment is made from outside Pakistan in foreign currency
Withholding Tax on Digital Payments
For sales or services where payment is made digitally (bank transfer, credit/debit card, wallet), the bank is responsible for deducting tax before the payment reaches the seller.
| Filer Status | Tax Rate | Withholding Agent |
|---|---|---|
| Filer | 1% | Bank |
| Non-Filer | 2% | Bank |
Example: If a filer receives Rs. 100,000 via bank transfer, Rs. 1,000 will be withheld by the bank. A non-filer would have Rs. 2,000 deducted.
Withholding Tax on COD Transactions
If payment is made through cash on delivery, the courier company (such as TCS, Leopards, M&P, Rider) acts as the withholding agent and deducts tax before transferring funds to the seller.
| Filer Status | Tax Rate | Withholding Agent |
|---|---|---|
| Filer | 2% | Courier Company |
| Non-Filer | 4% | Courier Company |
This significantly affects small online sellers using COD for local deliveries.
Does This Tax Apply to Buyers?
No. These are income taxes deducted at source from the seller’s earnings, not from the buyer. Buyers will still pay:
- Sales tax on products or services
- Advance tax on foreign digital purchases (e.g., Netflix, Apple subscriptions)
Who Must Deduct and Deposit the Tax?
The responsibility to deduct and deposit WHT lies with:
- Banks for digital payments
- Courier companies for COD payments
They must deduct the applicable percentage before paying the seller and deposit it directly to the Federal Board of Revenue (FBR).
Are Freelancers Affected?
Only if they:
- Serve clients within Pakistan, and
- Receive payments via local bank transfers or COD
Freelancers with foreign clients paid through Payoneer, Wise, PayPal, or direct USD/EUR transfers are not subject to this WHT, as their income is considered foreign-sourced and taxed under Section 154A or Export Regime (usually at 0.25% to 1%).
Transactions Covered Under This Regime
Included:
- Local e-commerce stores selling within Pakistan
- Pakistani service providers paid through local banks
- Instagram or WhatsApp sellers accepting local payments
- COD deliveries handled by domestic courier companies
Not Included:
- Earnings from Fiverr, Upwork, Amazon, or international clients
- Foreign payments processed through Payoneer or other international gateways
- Export of IT or physical goods
Key Takeaways for Sellers
- This is an income tax, deducted before the seller receives payment
- Banks and courier companies will deduct and deposit WHT automatically
- Filing with FBR reduces your tax rate, so becoming a registered filer is highly recommended
- Even personal accounts used for business may attract WHT if transaction volume is high
- Sellers are advised to maintain proper records and consider using business bank accounts
Stay Compliant, Stay Ahead
If you are a digital service provider or run a small e-commerce business, understanding your tax obligations is now more important than ever. Our remote worker and freelancer tax filing service can help you stay compliant with Pakistan’s evolving tax landscape.
