ISLAMABAD: Pakistan’s national tax authority has withdrawn a levy on goods and services ordered online and supplied from abroad, a notification announced on Wednesday, rolling back a key provision giving relief to international retailers operating in the national cyberspace.

The government introduced new measures including the Digital Presence Proceeds Tax Act 2025 in the federal budget passed on June 26 to tax income earned by foreign vendors.

The measures included a five percent fixed income tax on digital retailers on goods delivered by foreign firms such as Temu, Shein and AliExpress, and a reduction in the duty-free threshold for imported parcels from Rs5,000 ($18) to Rs500 ($1.80).

“The federal government is pleased to direct that the Digital Presence Proceeds Tax shall not apply to digitally ordered goods and services supplied from outside Pakistan, by any person, which are chargeable to tax under the said Act,” the Federal Board of Revenue (FBR) said in the notification, adding the decision would “come into force on and from the 1st day of July, 2025,” highlighting its retrospective implementation.

The government plans to collect over Rs14 trillion ($49.3 billion) in taxes in the ongoing fiscal year to meet targets set under the $7 billion International Monetary Fund loan program.

The government’s decision to impose the digital presence tax was welcomed by local retailers, who said foreign firms had been operating without paying taxes, allowing them to undercut domestic businesses.

Until the implementation of the new budget, foreign e-commerce platforms had been selling to Pakistani consumers through social media without being subjected to local tax laws.

Local retailers already paying up to 25 percent in taxes say they have struggled to compete with tax-exempt imports offering cheaper prices.