Taxation is one of the major issues for stakeholders of e-Commerce platforms. This policy encourages the provincial governments to incentivize the online businesses through revision of provincial sales tax.

Furthermore, provincial tax regime will be harmonized to avoid double
taxation. One of the priority areas will be simplification of tax filing procedures including GST.

Businesses of all types are subjected to taxation, whether operating online or not. Taxation of e-Commerce platforms has always been a contentious issue between e-Commerce players and the revenue authorities all over the world. On one hand, demand of e-Commerce platforms for tax exemptions seems plausible for their growth and strengthening the economy, on the other hand, tax authorities are rightly concerned about country’s revenue base. Likewise, if new technology enabled industry is not allowed the due space to grow, it will not be able to bring its promised benefits to Pakistan’s economy.

This makes taxation of e-Commerce entities quite a controversial issue to deal with. In Pakistan, taxation structure related to e-Commerce
businesses requires certain reforms in the form of harmonization in sales tax rates, avoidance of double taxation and simplified procedures in filing of tax returns.

Currently, provinces are responsible for collection of general sales tax on services. They are applying different general sales tax rates on services and are using different criteria for collection of sales tax; for instance in case of Punjab Province, the preference is to collect at destination or point
of sale, while Sindh Province prefers collecting at the point of origin of services. Current applicable rates of sales tax in Punjab, Sindh, Khyber Pakhtunkhwa and Baluchistan are 16%, 13%, 5% and 15% respectively.

In general, the procedures for filing of sales tax returns are also cumbersome and complicated; however, this may not be the case with online business having transactions’ data recorded in digital format

Policy Outcomes
Sales tax regime can be used by Provincial Revenue Authorities to attract investment in their Provinces.
Khyber Pakhtunkhwa Province has reduced GST to 5% for e-Commerce enterprises as an incentive to attract more e-Commerce companies in that Province.
Provincial Revenue Authorities will also harmonize GST collection system to avoid double taxation.

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