By Huzefa Muhammad
In a move that has drawn criticism from digital entrepreneurs and industry experts alike, the Federal Board of Revenue (FBR) has shifted its focus toward Pakistan’s emerging e-commerce sector. Despite contributing less than 3% to the country’s overall retail activity, the sector is now under increased regulatory and tax pressure. Meanwhile, larger and more deeply entrenched sectors of the economy continue to operate with limited compliance and minimal tax oversight.
For years, efforts to integrate traditional retail into the tax system have struggled. Previous schemes have collapsed under resistance from powerful trader groups who have routinely shut down markets to oppose reforms. Rather than tackling these longstanding structural issues, the government has chosen to concentrate on the relatively new and still-developing digital retail space.
In 2025, the government introduced a differentiated tax framework. Local e-commerce platforms were subjected to a 2% tax, while international platforms were initially charged 5%. However, this distinction did not hold. Under external diplomatic pressure, particularly from the United States, the 5% levy on foreign platforms was quietly removed. The tax on local businesses, however, remains in full effect.
To implement the policy, the government assigned the task of tax collection to banks for digital payments and logistics companies for cash-on-delivery transactions. This mechanism has proven especially burdensome in a country where cash-on-delivery still dominates consumer behaviour. With digital trust and infrastructure still developing, the current structure disproportionately penalises domestic businesses.
For small-scale online sellers, particularly women operating from home or entrepreneurs in rural regions, the new framework has created significant challenges. Many find it difficult to complete the formal registration process or are hesitant to disclose their financial activity due to concerns about bureaucracy and privacy. The lack of flexibility in the policy has led some sellers to withdraw from the online landscape altogether. This comes at a time when economic hardship has driven many households to rely on small-scale e-commerce for supplemental income.
Observers note that these barriers are pushing out precisely those who could benefit most from digital participation. Rather than supporting the expansion of the online economy, the policy appears to be narrowing it, particularly for the most vulnerable groups.
At the same time, inconsistencies in enforcement have become increasingly apparent. While small sellers face strict oversight, larger players often avoid compliance altogether. Some logistics providers have reportedly shifted to informal, unreported cash transactions. This practice, in some cases, extends to major retail clients with significant online operations. The end result is a regulatory environment where the smallest players carry the heaviest burden, while those with greater resources and influence are able to bypass the rules.
The broader picture suggests a troubling trend. A policy that was introduced under the banner of tax reform and digital growth now appears to be widening the gap between the formal and informal economy. It risks sidelining the very communities that e-commerce has the potential to empower.
If Pakistan is serious about creating an inclusive digital economy, policymakers will need to reassess current strategies. Without meaningful reforms, the country risks undermining a sector that could play a vital role in economic resilience, innovation, and social inclusion.
Huzefa Muhammad is a freelance writer specializing in digital transformation and emerging technologies.
