Pakistan forms body to review e-commerce tax policy after new budget measures

In a handout photo by Government of Pakistan on June 12, 2025, Commerce Minister, Jam Kamal Khan in conversation with Federal Minister for Information Technology and Telecommunication, Shaza Fatima Khawaja (not in picture) in Islamabad.
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Updated 12 June 2025
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Pakistan forms body to review e-commerce tax policy after new budget measures

  • Fiscal plan for 2-25-26, announced on June 10, imposes tiered taxation structure on digital transactions
  • Commerce, IT ministries are seeking input on reforms amid concerns over rising costs for online businesses

ISLAMABAD: Pakistan’s commerce and information technology ministries have announced the formation of a joint working group to propose changes to the country’s e-commerce tax regime, following the introduction of new digital levies in the federal budget for fiscal year 2025–26.

The budget, announced on June 10, imposes a tiered taxation structure on digital transactions. For payments under Rs10,000 ($35), a 1 percent tax will be applied. Payments between Rs10,000 and Rs20,000 ($71) will face a 2 percent tax, while transactions above Rs20,000 will be taxed at 0.25 percent. Courier services will collect the tax for cash-on-delivery orders, and payment gateways will deduct it for online payments. 

The measures have raised concerns among businesses about increased compliance burdens and costs for online consumers.

“In line with the consultative approach of the forthcoming policy, Minister Kamal Khan announced the formation of a joint working group with input from the IT Ministry to gather comprehensive recommendations on taxation, vendor compliance and digital payments,” the commerce ministry said in a statement after a meeting between Commerce Minister Jam Kamal Khan and IT Minister Shaza Fatima Khawaja.

“The group’s findings will be formally presented to the prime minister for final consideration,” it added.

“Minister Kamal also confirmed that e-commerce policy 2.0 is in its final stages of internal review and will soon be submitted for cabinet approval.”

Pakistan’s e-commerce sector has grown rapidly, reaching a market value of Rs2.17 trillion ($7.7 billion) in 2024, according to the ministry of commerce. The sector is expected to expand at a compound annual growth rate of 17 percent through 2027, driven by increased smartphone penetration, digital payments, and logistics infrastructure.

The new tax framework has triggered concern among industry stakeholders, particularly small and medium-sized enterprises (SMEs), which dominate Pakistan’s online retail sector. Analysts say the measures could slow growth and hinder innovation in a sector seen as key to the country’s digital transformation.

In comparison, regional tax regimes vary.

India applies a 1 percent Tax Collected at Source (TCS) on e-commerce sellers under its Goods and Services Tax (GST) framework, while Bangladesh introduced a 5 percent VAT on local digital services in 2022. Sri Lanka levies a 2.5 percent Value Added Tax on online purchases, with additional withholding tax for certain platforms.

Globally, the European Union imposes VAT on cross-border e-commerce transactions, with rates ranging from 17 percent to 27 percent, while US states apply sales taxes ranging between 0 percent and 10.25 percent, depending on jurisdiction.

Pakistan’s e-commerce policy 2.0, once finalized, is expected to address regulatory gaps and streamline the digital business environment, which has so far operated under fragmented taxation and compliance rules.


Pakistan says militants attempted drone attacks inside its territory, Afghanistan says carried out airstrikes

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Pakistan says militants attempted drone attacks inside its territory, Afghanistan says carried out airstrikes

  • Islamabad says anti-drone systems intercepted devices in three cities
  • Kabul says it carried out airstrikes in Pakistan after earlier strikes in Afghanistan

ISLAMABAD: Pakistan on Friday said militants attempted to launch small drones inside its territory, while Afghanistan’s ministry of defense claimed it had carried out retaliatory airstrikes in “various areas of Pakistan,” marking a sharp escalation in cross-border hostilities between the bitter neighbors.

The developments follow Pakistani airstrikes earlier this week targeting what Islamabad said were Tehreek-e-Taliban Pakistan (TTP) and Daesh militant camps inside Afghanistan. Pakistan said those strikes killed more than 100 militants, while Kabul said women and children were killed and condemned the attacks as violations of Afghan sovereignty.

On Thursday night, Afghanistan’s Taliban authorities said they had launched “large-scale offensive operations” against Pakistani military bases and installations, prompting Pakistan to say its forces were responding to what it described as unprovoked fire along the shared border. 

Pakistan’s Information Minister Attaullah Tarar said on Friday afternoon militants had attempted drone activity inside three Pakistani cities.

“Fitna al khawarij [TTP] terrorists have attempted to launch small drones in Abbottabad, Swabi and Nowshera. Anti Drone Systems have brought down all the drones. No damage to life,” Tarar said.

“The incidents have again exposed direct linkages between Afghan Taliban Regime and Terrorism in Pakistan.”

Afghanistan’s Ministry of National Defense, in an X statement, said it carried out airstrikes inside Pakistan.

“The Ministry of National Defense of Afghanistan today, before noon, at around eleven o’clock local time, carried out airstrikes in various areas of Pakistan,” the statement said.

“These attacks were carried out in response to last night’s aerial incursions by Pakistani forces in Kabul, Kandahar, and Paktia.”

Pakistan has not confirmed any damage from the Afghan claim.

Earlier Friday, the Pakistani prime minister’s spokesman Mosharraf Zaidi said counter-strikes were continuing after what Islamabad described as unprovoked Afghan fire along the border.

“A total of 133 Afghan Taliban are confirmed killed, more than 200 wounded,” Zaidi said in an X update. “Twenty seven (27) Afghan Taliban posts have been destroyed, and nine (9) have been captured.”

On the Afghan side, the defense ministry claimed 55 Pakistani soldiers were killed and that two garrisons and 19 posts were captured. Pakistani officials denied losing any posts. None of the casualty figures or battlefield claims from either side could be independently verified.

Amid the escalating rhetoric, Pakistan’s State Minister for Interior Talal Chaudhry urged Afghanistan’s Taliban leadership to change its approach.

“They must behave like a state, not like a guerrilla force,” Chaudhry told reporters in Islamabad. “Until their behavior changes, we will adopt every possible option to make it change.”

Chaudhry said the United Nations had confirmed that over two dozen militant groups operate from Afghan territory and added that brotherly countries “do not send militants who slaughter our youth, attack school buses carrying children, or make places of worship and innocent women unsafe.”

Cross-border violence has intensified in recent weeks, with Pakistan blaming a surge in suicide bombings and militant attacks on insurgents it says are based in Afghanistan. Kabul denies providing safe havens to anti-Pakistan militant groups.

The latest clashes mark the third major escalation between the neighbors in less than a year. Several regional countries, including China, Russia, Saudi Arabia and Iran, have urged restraint as operations on both sides continued Friday.

The confrontation unfolds against a backdrop of growing friction over Afghanistan’s regional alignments. Pakistan has repeatedly accused the Taliban authorities of allowing Indian influence to expand in Afghanistan, an allegation Kabul has rejected.

Pakistan’s defense minister Khawaja Asif earlier said the Taliban government had turned Afghanistan into “a colony of India.”

Islamabad has long accused India of using Afghan territory to support anti-Pakistan militant groups, a charge New Delhi denies.