by Pakistan’s banking industry has formally urged the federal government to defer the implementation of recently introduced tax deduction policies on ecommerce operators, citing concerns over operational readiness, compliance complexities, and the broader impact on digital business growth.
Background
As part of the Finance Act 2025, the Federal Board of Revenue (FBR) introduced a new withholding tax mechanism that makes banks responsible for deducting tax at source from ecommerce merchants operating through their platforms. This move aims to increase revenue from the fast-growing digital commerce sector and bring more sellers into the formal tax net.
Banks Want Govt to Defer Tax Deductions on Ecommerce Operators.
However, commercial banks have voiced serious concerns over their ability to implement this policy smoothly.
Banking Sector’s Concerns
Industry representatives have communicated to the FBR and the Ministry of Finance that:
- Lack of Mechanism: Most banks currently do not have the technical infrastructure or regulatory clarity needed to identify and categorize ecommerce transactions at the merchant level with the precision required for withholding tax deductions.
- Risk of Overreach: There is confusion over the definition of ecommerce operators and sellers, raising the risk that legitimate non-ecommerce entities could be mistakenly subjected to tax deductions.
- Impact on Financial Inclusion: Banks fear that implementing such tax deductions prematurely could discourage informal online sellers and small entrepreneurs from using banking channels, thereby reversing progress on digital financial inclusion.
- Administrative Burden: The additional compliance requirements would increase the workload on banks’ compliance teams, which are already dealing with numerous regulatory obligations including AML/CFT and FATF guidelines.
Call for Deferral
In light of these issues, the Pakistan Banks’ Association (PBA) has formally requested the government to:
- Defer Implementation: Postpone the enforcement of this policy for at least six months to allow proper system integration and stakeholder consultations.
- Clarify Guidelines: Issue detailed SOPs and definitions that clearly explain who qualifies as an ecommerce operator and the exact process of tax deduction.
- Conduct a Pilot Run: Before full-scale enforcement, initiate a pilot program in collaboration with selected banks and FBR to identify loopholes and challenges.
Implications for Ecommerce Sector
The ecommerce industry, already under pressure from fluctuating exchange rates, import restrictions, and payment gateway limitations, views the withholding tax policy as another hurdle. Many digital businesses fear that if the deductions begin without clarity, it could severely affect cash flows and consumer trust.
Industry bodies, such as the Pakistan Software Houses Association (P@SHA) and the E-commerce Association of Pakistan, have supported the banks’ position, calling for constructive dialogue between the government and private sector stakeholders.
What’s Next?
The ball is now in the government’s court. The FBR, while eager to boost tax revenues and expand the tax base, must weigh the long-term benefits of a stable digital economy against the short-term gains from aggressive enforcement. A collaborative, phased approach might be the most sustainable way forward.
