Govt urged to rethink new taxes
E-commerce and chain store strategists have demanded the government rationalise the proposed taxes on online and registered businesses in order to maintain the pace of documentation in the retail sector and promote financial inclusion in the economy.
They urged the government to refrain from burdening taxpayers with additional taxes and duties to encourage the formalisation of retail and online businesses, which will promote the generation of long-term and sustainable dividends for the economy.
They also called on the government to pause the immediate enforcement of these policies, and instead initiate a structured dialogue with stakeholders to co-create pragmatic and growth-friendly tax policies.
Pakistan E-Commerce Association (PEA) Karachi Chapter President Shoaib Bhatti said that the proposed tax measures in the financial bill will severely risk the e-commerce sector, disrupting both established and small businesses by imposing an excessive compliance burden all at once.
He urged the government to avoid imposing the additional 2% withholding sales tax on e-commerce and retail sectors, which are already paying 18% general sales taxes. In comparison, informal retail segments in major shopping centres and bazaars are not paying taxes at all, he said.
Pakistan's e-commerce sector has grown over 35% annually in the past five years, with over 100,000 small online sellers active as of today, supporting the incomes of over a million people nationwide, added Bhatti.
Increasing the tax burden on this segment, he said, will be tantamount to slowing down its growth and contribution to the national economy.
According to estimates, the total market size of the e-commerce sector is estimated to be Rs2.2 trillion ($7.7 billion), which is still under 2% of the national GDP and up to 4% of the retail segment.
Chainstore Association of Pakistan (CAP) Chairman Hasan Javed remarked that the new tax will create an imbalance between documented and undocumented retail and online segments, as one pays an overall 20% GST and the second one will pay merely 2%, hence promoting a cash economy.
"Established online and chain stores are already paying 15-16% provincial taxes to the government, and an additional 5% federal levy will increase their cost of doing business. Therefore, we appeal to the provincial government to reduce the tax rate at their end," he remarked.
The proposed tax measures place heavier obligations on e-commerce than on the traditional retail and wholesale sectors. Rather than encouraging formalisation, these measures could push businesses back into informality — or out of operation entirely, he said.
The Finance Bill introduces multiple taxes and complex procedures across all related businesses, with no stakeholder consultation or phased rollout, which could adversely hit the sector.
What's more, a number of e-commerce stores shut down in the past two years due to tough competition among players and higher logistics and operating costs.
Saad Shah, CEO Ucaaz, said established e-commerce and chain stores have been highly regulated with tax compliances and equipped with payment systems, however, increasing the burden of tax and levies on these stores will not be favourable for them.
He pointed out that various online and chain stores not only offer high-quality branded products to customers, but also offer them handsome discounts on products due to their efficient business models which attract footfall and generate tax revenues for the government, unlike grocery shops in major retail and wholesale markets in big cities.
The e-commerce sector is developing a growing and inclusive ecosystem that also generates jobs for the youth, and provides entrepreneurial and investment opportunities for the masses. Disrupting this sector will ultimately hurt all stakeholders, stated Shah.