FBR Introduces New Tax Rules for E-commerce to Boost Compliance

The Federal Board of Revenue (FBR) has issued new regulations to govern e-commerce sellers and digital transactions, part of a broader strategy to expand the tax base and ensure compliance for online goods and services. The new rules, detailed in Income Tax Circular No. 01 and Sales Tax Circular No. 02, streamline the process for e-commerce retailers to get a National Tax Number (NTN) and establish a new withholding tax (WHT) system. Under this new regime, all digital payments for goods and services will be subject to a 1% tax, which payment intermediaries like banks and digital gateways must withhold. For cash-on-delivery (CoD) transactions, couriers are now required to deduct a 2% tax. These differential tax rates are designed to incentivize the use of digital payments and push the economy towards a cashless model.

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As part of these changes, all e-commerce sellers are now legally required to register for income tax. Online marketplaces (OMPs) and courier services are prohibited from working with unregistered sellers and must file periodic statements detailing their vendors. The tax collected will be considered a final tax on the seller's income from both domestic and export transactions. For non-compliant businesses, the FBR has introduced fines for OMPs and courier services that fail to withhold tax or meet registration requirements. The new regulations also aim to tighten sales tax compliance, with tax collected by intermediaries and couriers considered a final liability for small businesses and non-tier-1 retailers, while other businesses can adjust the withheld tax against their output tax. These comprehensive measures are a significant step toward formalizing Pakistan's e-commerce sector and transitioning to a more digital economy.