Banks Urge Government to Delay Tax Deductions on E-Commerce Operators

Commercial banks have requested a temporary deferral of tax deduction under the government’s new policy targeting e-commerce gateway operators and merchants, citing the lack of an automated system to process such deductions.

According to banking sector sources speaking to ProPakistani, banks are currently not deducting any taxes from e-commerce merchants due to the absence of a digital mechanism for real-time tax deduction and collection.

The government recently introduced multiple taxes on digital payments to boost revenue from the rapidly growing e-commerce sector, including levies on payment gateways and online merchants.

However, a senior banking official stated that it is not feasible to build an automated deduction system overnight, and in some cases, e-commerce companies may need to collect taxes directly from their customers until a proper system is developed.

Representatives of commercial banks, through the Pakistan Banks Association (PBA), have approached the State Bank of Pakistan (SBP) requesting a deferral of these taxes on digital payments. They argued that until banks can establish the necessary tax infrastructure, implementation remains impractical.

While banks are actively working on the development of tax deduction systems, officials admitted that withholding tax through e-commerce platforms is particularly challenging at this stage. The onus, for now, might fall on e-commerce operators to ensure compliance from their end.

In the latest federal budget, the government imposed new taxes ranging from 2% to 5% on digital payments made through local and international e-commerce platforms. However, foreign online sellers and digital advertising on social media platforms were exempted from these taxes.

According to the SBP, there are around 10,000 registered e-commerce operators with banks in Pakistan. E-commerce activity has seen substantial growth, with over 213 million online transactions recorded in the third quarter of FY25, marking a 40% increase in volume and a 34% rise in value, reaching Rs. 258 billion.