Budget 2025-26 – E-commerce and Marketplace

Budget 2025-26 – E-commerce and Marketplace

Key Concepts and Regulations

Q1: What are the key definitions related to e-commerce and goods movement in the new financial proposals?

A1: The sources introduce several important definitions:

Cargo Tracking System (CTS): A digital system notified by the Board for electronic monitoring and tracking of import, export, transit, and transshipment goods transported within or across Pakistan. Its purpose is enforcement, compliance, and prevention of smuggling under Customs law, and tax enforcement, compliance, and prevention of tax evasion under Sales Tax law.

E-bilty: A digital document generated through the Cargo Tracking System that must accompany transport carrying import, export, transit, and transshipment goods within or across Pakistan, in a format prescribed by the Board.

E-commerce: The sale or purchase of goods and services conducted over computer networks (like websites, mobile applications, or online marketplaces) designed for receiving or placing orders digitally.

Online Marketplace: Online interfaces that facilitate direct interaction between multiple buyers and sellers for digital orders of goods and services, often for a fee, regardless of whether the platform takes economic ownership of the goods or services.

Courier: Any entity engaged in the delivery of goods and collection of cash on behalf of a seller, including logistic services, ride-hailing services, food delivery platforms, and e-commerce delivery services.

Payment Intermediary: A banking company, financial institution, licensed foreign exchange company, or payment gateway that facilitates the transfer of funds or payment instructions between parties in a financial transaction, without being the ultimate source or recipient of the payment.

Digitally Delivered Services: Services delivered over the internet or electronic networks with minimal or no human intervention, such as music/video streaming, cloud services, online software, tele-medicine, e-learning, online banking, and digital architectural/consultancy reports.

Foreign Vendor: A vendor located outside Pakistan who has a significant digital presence in Pakistan.

Q2: How is sales tax applied to e-commerce transactions under the proposed changes?

A2: The proposed regime significantly changes sales tax collection for digitally ordered goods within Pakistan:

  • Collection Responsibility:
    • For digital payments, the payment intermediary (e.g., banking company, financial institution, licensed exchange company, or payment gateway) is liable to collect and pay the tax.
    • For Cash on Delivery (CoD) transactions, the courier delivering the goods is responsible for collecting the tax.
  • Final Discharge of Tax Liability: The tax collected by the payment intermediary or courier is considered the final discharge of tax liability for the online marketplace, vendors on the marketplace, websites, and software applications making those supplies. No input adjustment is allowed in respect of these supplies.
  • Withholding Tax Scope: The withholding tax scope has been expanded to cover transactions settled via online payment or CoD to better capture the growing e-commerce sector.

Q3: What are the sales tax rates for digitally ordered goods collected by payment intermediaries and courier services?

A3: The rates for sales tax collection vary based on the payment method and type of goods:

  • For payments through Digital Means or Banking Channels (by Payment Intermediary):
    • Amount paid not exceeding Rs. 10,000: 1% of the gross amount paid.
    • Amount paid exceeding Rs. 10,000 but not exceeding Rs. 20,000: 2% of the gross amount paid.
    • Amount paid exceeding Rs. 20,000: 0.25% of the gross amount paid.
  • For Cash on Delivery (CoD) (by Courier Service):
    • Supply of electronic and electrical goods: 0.25% of the gross amount paid.
    • Supply of clothing articles, apparels, garments, etc.: 2% of the gross amount paid.
    • Supply of goods other than those mentioned above: 1% of the gross amount paid.

Q4: What are the registration requirements for individuals and entities involved in e-commerce under the Sales Tax Act and Income Tax Ordinance?

A4: There are strict registration requirements:

  • Sellers: Every person, including non-resident persons, selling digitally ordered goods from within Pakistan through an online marketplace, website, or software application, must apply for sales tax registration.
  • Online Marketplaces and Couriers: Every online marketplace or courier involved in e-commerce by supplying or delivering digitally ordered goods or services from within Pakistan shall not allow any person/vendor to use their services to carry out e-commerce transactions unless that person/vendor is registered under both the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001.

Q5: What is the “Digital Presence Proceeds Tax (DPPT)” and who is it intended for?

A5: The Digital Presence Proceeds Tax (DPPT) is a new tax introduced to address the challenges of taxing multinational enterprises that generate substantial revenues from jurisdictions where they have little or no physical presence, particularly in the digital sector:

  • It is specifically charged on foreign vendors having a significant digital presence in Pakistan.
  • The tax applies to proceeds from every supply made from outside Pakistan of digitally ordered services or goods, regardless of whether they are delivered digitally or physically.

Q6: What constitutes a “significant digital presence” for a foreign vendor for the purpose of DPPT?

A6: A foreign vendor is considered to have a “significant digital presence” in Pakistan if their aggregate number of transactions exceeds five for the current financial year, along with at least one of the following additional factors:

  • Existence of a user base and associated data input in Pakistan.
  • Billing or collection in local currency or with a local form of payment.
  • Responsibility for the final delivery of goods and services to Pakistani consumers.
  • Responsibility for providing other support services (such as after-sales services, repairs, and maintenance) in Pakistan.
  • Sustained marketing and sales promotion activities (online or otherwise) to attract customers in Pakistan.

Q7: What are the rates for the Digital Presence Proceeds Tax (DPPT)?

A7: The tax rate for cross-border transactions of digitally ordered goods and services is 5% of the payment:

  • Services: 5% of the payment, including for advertisements on social media platforms.
  • Goods: 5% of the payment made to the foreign provider.

Q8: Who is responsible for collecting the Digital Presence Proceeds Tax (DPPT)?

A8: The payment intermediary (including banking companies, financial institutions, licensed exchange companies, or payment gateways) responsible for making payments to a foreign vendor that are remitted outside Pakistan, is required to deduct the DPPT from the gross amount paid. Additionally, foreign vendors with a digital presence in Pakistan who make payments to social media platforms or other online platforms for online advertising in Pakistan must also deduct this tax.

Q9: What are the reporting requirements for online marketplaces, payment intermediaries, and courier services?

A9: These entities have specific reporting obligations:

  • Online Marketplaces:
    • Must furnish a true, complete, and correct monthly statement in the prescribed form, indicating supplier-wise amounts paid and tax due, and other information of taxable supplies of digitally ordered goods from within Pakistan (regardless of economic ownership).
    • In the Income Tax context, they must submit a monthly statement including the name, address, Sales Tax and Income Tax registration numbers of all vendors on their platform, transactional and aggregated monthly turnover, and amounts deposited into the vendor’s bank account.
  • Payment Intermediaries and Courier Services:
    • Must furnish a true, complete, and correct monthly statement in the prescribed form, indicating supplier-wise amounts paid and tax due, and other information for taxable supplies of digitally ordered goods from within Pakistan through online marketplaces, websites, and software applications.
    • For DPPT, payment intermediaries must file a quarterly withholding statement to the Commissioner, providing foreign vendor-wise information on all payments for e-commerce transactions (sales of digitally ordered services/goods), including purchaser name, ID, address, transaction date, unique identifier, total value, and tax deducted.
    • Payment intermediaries maintaining bank accounts for foreign vendors with digital presence in Pakistan must file a quarterly statement with information on the total credit amount in the bank account and the amount remitted outside Pakistan.
  • Social Media and Online Platforms (for DPPT):
    • Required to file a quarterly statement providing client-wise information (local or foreign vendors) whose advertisements are relayed in Pakistan through their platform, and the amount received.

Q10: What are the penalties for non-compliance by online marketplaces, payment intermediaries, and courier services?

A10: Penalties for non-compliance can be significant:

  • Failure to Furnish Statements:
    • An online marketplace, payment intermediary, or courier that fails to furnish the prescribed monthly sales tax statement by the due date is liable to a penalty of Rs. 500,000 for the first default and Rs. 1,000,000 for each subsequent default.
    • For DPPT, a payment intermediary or social media platform that fails to submit required statements for digitally ordered services/goods or advertisements is liable to a penalty of Rs. 1,000,000 for each default.
  • Allowing Unregistered Persons to Use Services:
    • An online marketplace or courier that allows unregistered persons to use its services for e-commerce transactions is liable to a penalty of Rs. 500,000 for the first default and Rs. 1,000,000 for each subsequent default (under Sales Tax).
    • Under Income Tax, an online marketplace allowing an unregistered vendor to use its platform is liable to a penalty of Rs. 500,000 for the first default and Rs. 1,000,000 for every subsequent default.
  • Failing to Deduct/Pay Tax (Income Tax):
    • A banking company, payment gateway, or courier service provider that fails to deduct or pay tax under section 153(2A) is liable to a penalty equal to 100% of the tax involved.
  • Seller Failing to Register:
    • Any seller supplying digitally ordered goods or digitally delivered services through an online marketplace who is required to register under Sales Tax Act, 1990 and Income Tax Ordinance, 2001, but fails to do so, is liable to a penalty of Rs. 500,000 for the first default and Rs. 1,000,000 for every subsequent default.
  • E-bilty Non-Compliance (Customs Act):
    • Failure to generate, carry, display, or validate an e-bilty and any ancillary tracking devices for inland movement of goods, or intentionally avoiding it, or tampering with/affixing devices to another conveyance, leads to a penalty of Rs. 50,000 for the first contravention and Rs. 500,000 for the second contravention. Subsequent contraventions incur a penalty of Rs. 1,000,000, confiscation of goods and conveyance, and potential imprisonment up to six months upon conviction.
  • Suspension of Remittances (DPPT): Payment intermediaries must suspend remittances of proceeds to foreign vendors if the Commissioner reports that such vendors have been advertising continuously for 120 days without paying the DPPT. This suspension is in addition to other recovery actions.

Q11: How does the Cargo Tracking System (CTS) and e-Bilty mechanism work for goods movement in Pakistan?

A11: The CTS and e-Bilty are crucial for monitoring goods:

  • Purpose: The CTS is a digital system for electronic monitoring and tracking of import, export, transit, and transshipment goods transported within or across Pakistan’s territory. It aims to strengthen enforcement, ensure compliance, and prevent smuggling.
  • E-bilty Requirement: Any person involved in the movement of goods (consignor, transporter, shipping agent, freight forwarder, consignee, supplier, or recipient) must electronically generate, carry, display, or validate an e-bilty through the Cargo Tracking System.
  • Scope: This applies to goods moved from and to seaports, land border stations, inland dry-ports, or during inland movement.
  • Exceptions: The Board may prescribe specific manners and procedures for implementing the e-bilty mechanism, and may exempt goods where the value or travel distance is less than a prescribed limit, or if the goods are specifically exempted.
  • Integration: Registered persons are required to ensure their tax invoice is generated and linked with the e-Bilty for goods that are transported or supplied. The provisions of section 83C of the Customs Act, 1969 related to the Cargo Tracking System and e-Bilty Mechanism shall apply mutatis mutandis to the Sales Tax Act.

Q12: Are there special provisions for tax collection on social media advertisements by foreign vendors?

A12: Yes, for the Digital Presence Proceeds Tax (DPPT):

  • Every foreign vendor having digital presence in Pakistan who makes any payment to social media platforms or any other online platform for online advertisements in Pakistan that are chargeable to DPPT (under section 3 of the DPPT Act) shall deduct tax from the gross amount paid.
  • The rate of tax for services, including advertisements on social media platforms, is 5% of the payment.