'Tax physical retailers, not budding e-commerce'

Industry urges withdrawal of taxes on IT, digital services sectors warning that new taxes may derail growth

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KARACHI:

Tech experts have pleaded for the withdrawal of taxes on the IT sector, digital services, and e-commerce to maintain momentum in digital transformation and economic documentation.

They urged the government to support sectors that bring in foreign exchange and investment, generate employment, and contribute tax revenue, rather than restricting growth through discouraging tax measures. However, they praised the government for allocating funds for IT infrastructure development and human resource training.

Pakistan Freelancers Association (PAFLA) Chairman and Executive Member of Digital Nation Pakistan, Ibrahim Amin, highlighted the importance of policy continuity. He suggested that the government extend the 0.25% Final Tax Regime for freelancers and IT exporters until 2035 to boost confidence, encourage compliance, and enhance remittances.

He said the proposed 5% tax on social media advertising could indirectly affect the income of IT companies and freelancers, which may negatively impact IT foreign exchange inflows.

"As per estimates, IT exports will surge to over $3.5-$4 billion, and remittances from freelancers will increase to more than $500 million by the end of the current financial year. If we want to sustain this growth, the government, along with stakeholders, should support these sectors with tax exemptions and incentives," he said.

The services sector has shown steady growth in IT and e-commerce. In May 2025 alone, 718 new companies were registered in these sectors, according to data released by the Securities and Exchange Commission of Pakistan (SECP).

Saad Shah, CEO of Ucaaz—a retail chain and e-commerce store—said the introduction of new taxes on e-commerce customers and vendors could slow down the sector's growth and its contribution to the broader economy, including digitisation and documentation.

He noted that e-commerce still holds an insignificant share of the overall retail market, but its rapid expansion is attracting both local and foreign investment. However, the new taxes will shake the confidence of major stakeholders in Pakistan's e-commerce ecosystem.

He pointed out that a significant segment of e-commerce contributes tax revenues, unlike the wider retail sector comprising shopping centres and wholesale markets. He added that instead of broadening the tax base, the government is overburdening existing taxpayers.

The government has introduced the Digital Presence Proceeds Tax Act, 2025, in the finance bill. It targets entities with significant digital sales in Pakistan conducted through foreign-registered companies. Under this act, a 5% tax will be levied on the invoiced amount for goods and services.

Additionally, the withholding tax rate on online and e-commerce transactions has increased from 1% to 2%, while an 18% GST has been imposed on goods purchased via local e-commerce vendors.

Mehwish Salman Ali, a tech expert and member of the P@SHA committee, urged the government to strengthen the IT and digital business ecosystem through favourable policies, including tax exemptions and incentives.

She warned that if government policies discourage investors and business owners, job creation would be affected, and ultimately the fruits of training new talent would not be reaped at an optimal level.

She praised the allocation of Rs4.3 billion for the capacity building and skill development of 161,500 students, including 56,000 in IT-related fields. The IT industry is facing a serious shortage of human resources, and investing in youth to equip them with emerging skills is crucial, she added.