ISLAMABAD: The Federal Board of Revenue (FBR) has intensified its efforts to streamline tax compliance and expand the tax net, particularly within the burgeoning e-commerce sector. The FBR recently shared essential concepts of sales tax laws, aiming to clarify obligations for individuals and businesses, especially in light of the latest reforms introduced under the Finance Act, 2025.
Concurrently, a critical new legal framework now mandates that only tax-registered sellers can conduct online supplies in Pakistan.
Understanding Sales Tax: The FBR’s Clarification
Sales tax in Pakistan is a government-imposed levy on the sale, supply, and import of goods, governed by the Sales Tax Act, 1990, and the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. The FBR emphasizes that a foundational understanding of sales tax is crucial for compliance and avoiding costly mistakes.
Key concepts clarified by the FBR include:
Input Tax: This refers to the sales tax paid by a business when purchasing taxable goods or services, including taxes on imported items.
Output Tax: This is the sales tax a business charges its customers when selling taxable goods or services.
Net Tax Payable/Refundable: Businesses must calculate the difference between their input and output taxes to determine the final amount owed to or refundable by the FBR.
Taxable vs. Exempt Goods: Most goods in Pakistan are subject to sales tax unless specifically exempted under Section 13 and the Sixth Schedule of the Sales Tax Act, or through official notifications (SROs). Nearly all imported goods are also subject to sales tax upon entry, with specific exemptions.
With these simplified guidelines, the FBR aims to reduce confusion and make sales tax compliance more approachable for all businesses, whether new or already registered.
Mandatory Registration for All Online Sellers: A Game Changer for E-commerce
In a parallel and highly significant development, the Finance Act, 2025, has introduced sweeping changes for Pakistan’s e-commerce sector. According to renowned tax expert and High Court Advocate Muhammad Zeeshan Merchant, only tax-registered sellers are now eligible to make online supplies under the new legal framework.
“From now on, only registered individuals holding both a National Tax Number (NTN) and a Sales Tax Registration Number (STRN) can sell goods online. This rule applies equally to both resident and non-resident sellers,” stated Merchant, a former president of the Karachi Tax Bar Association.
Key aspects of the new e-commerce tax regime:
Definition of Online Supply: This includes buying or selling goods through websites, mobile apps, or digital marketplaces, regardless of the payment method (credit cards, bank transfers, or Cash on Delivery – CoD).
2% Sales Tax on Online Transactions: A 2% sales tax is now applicable on online transactions. This tax will be automatically collected by intermediaries such as banks, couriers, payment gateways, and digital wallets, including deductions for CoD orders.
Final Tax for Certain Sellers: For specific sellers like cottage industries and non-Tier-1 retailers, these 2% deductions will be considered final. However, they will not be able to claim any input tax credits for these transactions.
Mandatory Registration: Section 14 of the Sales Tax Act has been expanded through sub-sections 1A and 1B, making it mandatory for any person selling digitally-ordered goods—including non-residents—to be registered, unless specifically exempted.
Intermediary Responsibility: Online marketplaces and couriers are now legally bound to serve only tax-registered sellers. This includes verifying that the seller possesses both an NTN and an STRN before facilitating their online transactions.
Forced Registration: A new clause (2A) empowers tax authorities to forcibly register individuals who haven’t complied despite being liable, after providing them an opportunity to be heard.
The message from the FBR and tax experts is clear: if you’re not registered, you cannot operate in Pakistan’s online marketplace. This comprehensive approach aims to bring the rapidly evolving e-commerce landscape into the formal tax net, ensuring compliance and fair play.
