Latest news with #DigitalPresenceProceedsTaxAct
Business Recorder
2 days ago
- Business
- Business Recorder
A comment on Finance Act 2025—II
Disruption and distortion The tax regime introduced is a final tax regime. This means that such transactions which were earlier subject to normal tax are now going to be taxed at the aforesaid rates which will be final tax on such transactions. This change will create a big disruption and distortion and the whole business model may change if the business is switched to digital mode. A comment on Finance Act 2025—I This will improve documentation; however the final regime, which is creating distortion, is to be rolled back, over the time, when there is adequate documentation. Exclusion These new provisions will not apply to exports of goods (Section 154) and export of services (Section 154A), which will continue to be taxed under the present regime. Digital Presence Tax for Foreigners General For foreigners a new kind of tax under the name 'Digital Presence Proceeds Tax Act, 2025' has been introduced. This is a tax on proceeds of foreign vendors as are deemed to be attributable to Pakistani users based on their significant digital presence in Pakistan where: (i) The transaction is carried out through foreign online marketplace or e-store; (ii) They arise in connection with digitally ordered services and goods; and (iii) A Pakistani user is a party to the transaction. This tax applies to those cases where digital transactions are not covered under domestic digital transactions as referred above. This includes both goods and services. Rate The tax rate for collection for cross-border transactions of digitally ordered goods and services shall be as under. a. Services @ 5% of the payment including of advertisement on social media platforms b. Goods 5% of the payment made to foreign provider This tax therefore effectively relates to transactions undertaken by platforms like 'Amazon', 'Google' etc. Background and perspective The tax as imposed is a replica of the tax imposed in India. The present status in India is indicated below: The Indian Finance Minister Nirmala Sitharaman unveiled the change while introducing amendments to the 2025 Finance Bill in the lower house of parliament, which approved the tax measures in the budget. '(I) have proposed to remove (the) 6 percent equalisation levy for advertisements,' she told parliament. India's 6 percent equalisation levy, or digital tax, affects online advertising services provided by foreign companies, requiring them to withhold and remit the tax to the government. Last year, New Delhi abolished a levy of 2 percent on non-resident e-commerce firms for providing online services. This means that this taxation has been very strongly resisted by international companies, especially those in the USA. Special kind of presence in Pakistan This tax is levied on such services which are otherwise not taxable under normal regime as such digital presence is not treated as permanent establishment in Pakistan and even if it is so the activity is not considered to be attributable to Pakistan. In order to overcome that deficiency this specific law is introduced with a particular definition of digital presence which has been defined in the Act as under: Significant digital presence in Pakistan. – A foreign vendor shall have significant digital presence in Pakistan under this Act, where the foreign vendor supplies digitally ordered services and goods from outside Pakistan to any user in Pakistan, if the aggregate amount exceeds one million rupees in a financial year along with one of the following additional factors – (a) Existence of a user base and the associated data input; (b) Billing or collection in local currency or with a local form of payment; (c) Responsibility for the final delivery of goods and services to Pakistani consumers; (d) Responsibility for the provision by the foreign vendors of other support services (aftersales services, repairs and maintenance); and (d) Continued marketing and sales promotion activities, online or not, to attract customers. Collection and Payment of Tax Every payment intermediary including a banking company, financial institution, licensed exchange company or payment gateway responsible for making a payment in whole or part remitting outside Pakistan, to a foreign vendor for digitally ordered services or goods shall deduct tax from the gross amount paid. Definitions-Digital Tax for Foreigners 'digitally delivered services' means any service delivered over the internet or electronic networks, where the delivery is automated and required minimal or no human intervention including music, audio and video streaming services, cloud services, online software application services, services delivered through online inter-personal interaction i.e. tele-medicine, e-learning etc., online banking services, architectural design services, research and consultancy reports, accounting services in the form of digital files or any other online facility; (d) 'e-commerce' means sale or purchase of goods and services conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders either through websites, mobile applications or online marketplace having digital ordering features by using either mobile phones or automated computer-to-computer ordering system; (e) 'e-store' means the online platform including websites and software applications used to conduct e-commerce, which involves buying and selling goods or services including digital products, through electronic transactions over the internet or other computer networks; (f) 'online marketplace' means Online interfaces that facilitate, for a fee, the direct interaction between multiple buyers and multiple sellers for digital orders for supply of goods and services, without the platform taking economic ownership of the goods or rendering the services that are being sold; and (g) 'payment Intermediary' means any third part entity including a banking company, financial institution, a licensed foreign exchange company or payments gateway that facilitate the transfer of funds or payment instructions between two or more parties to enable, process, route or settle payments in a financial transaction, without being the ultimate source or recipient of the payment. Embargo/restriction on economic transactions The Finance Act, 2025 has for the first time laid down embargo/restrictions on certain economic transactions. Two kinds of transactions have been included: a. Those relating to acquisition of assets etc; b. Those relating to withdrawal from a bank account. (To be continued) Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business
- Business Recorder
A comment on Finance Act 2025—I
Introduction: The Finance Act, 2025 has been passed by the National Assembly. This Act has introduced some major changes and innovations in the tax system of Pakistan. Pakistan is faced with the crises of ever-increasing non-documentation and non-compliance of the tax regime. Many steps undertaken to improve documentation and compliance remained fruitless. In order to overcome that situation a fundamentally wrong concept of 'Non-filer' was introduced. That system is inherently wrong. A person who is non-compliant cannot be treated as legally compliant only by increasing the rate of tax applicable on various withholding transactions. In the Finance Act, 2025 a major shift has been made on this account. As a result provisions have been introduced where certain large economic transactions for acquisition of assets and bank withdrawal are restricted in case where return is not filed and there are insufficient funds in the wealth statement or the person is not registered; if required to be registered. These notes describe, in summary, the important changes in the existing provisions and introduction of some new provisions. Through the Finance Act, 2025 a completely new regime has been introduced for digitally delivered goods and services. A final rate of income tax has been provided at 1 and 2 % of gross sale proceeds in respective cases. Furthermore, a substantially reduced sales rate of 2% as against 18% has been prescribed for domestic digitally delivered goods by retailers other than Tier 1 retailers and cottage industry. For international transactions a new law, which is similar to Indian Equalisation Tax has been enacted. The major change in the enforcement system is the introduction of the concept of embargo / restriction placed on certain economic transactions including withdrawal of cash from a bank account when the return is not filed or business is not registered under the Sales Tax. This is a very big step. It will assist in improving the level of documentation of the economy, if properly implemented. Income Tax: Taxation of Digital Transactions General Finance Act, 2025 has separated tax on digital transactions from normal tax regime. Two different systems have been introduced each for domestic and international digital transactions or presence. Accordingly, a final tax regime has been introduced for domestic transactions whereas a separate law, which is also a final tax, by the name of Digital Presence Proceeds Tax Act, 2025 has been enacted for international transactions. Domestic Digital Presence and Transactions Concept A new final tax regime has been introduced for supply of digitally ordered goods or services using locally operated online platforms including online marketplace. Now such transactions would not be part of normal tax regime. (Section 8 of the Income Tax Ordinance 2001 will apply on these transactions) These provisions are applicable on supply of digitally ordered goods or services which are delivered within Pakistan using locally operated online platforms, including online marketplace or websites. These terms have been appropriately defined in the Ordinance.) Nature of supply of goods covered: These provisions will apply on transaction of ordering and delivery of goods which comply with the following conditions: Transaction is undertaken through: a. 'E-commerce', which has been defined to mean sale or purchase of goods and services conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders either through websites, mobile applications or online marketplace having digital ordering features by using either mobile phone, iPad, Tablet or automated computer-to-computer ordering system. or b. Online marketplace being an information technology platform run by e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller and includes 'online interfaces' that facilitate, for a fee, the direct interaction between multiple buyers and multiple sellers via digital orders for supply of goods and services, with or without the platform taking economic ownership of the goods or providing or rendering the services that are being sold. The payment is received through: a. Courier service which means any specialized entity that provides fast, secure and often tracked transportation of documents, packages and small freight, typically offering door-to-door delivery solutions of goods within specific timeframes and in case of digitally ordered goods in e-commerce delivery and collection of cash (CoD) on behalf of the seller and such delivery service provider includes but not limited to – (a) Logistic services; (b) Ride-haling services; (c) Food-delivery platforms; and (d) E-commerce services; b. Payment intermediary being any third party entity including a banking company, financial institution, a licensed foreign exchange company or payments gateways that facilitate the transfer of funds or payment instructions between two or more parties to enable, process, route or settle payments in a financial transaction, without being the ultimate source or recipient of the payment There are withholding/ collecting provisions under Section 153 of the Ordinance, as under: (i) every payment intermediary at the time of processing payment through digital means, on behalf of a seller of digitally ordered goods or services through locally operated e-commerce platforms (including websites); and (ii) every courier business providing courier services collecting cash from a buyer under Cash on Delivery (CoD) payment terms on behalf of a seller for the supply of digitally ordered goods and services through e-commerce platforms (including websites); This withholding/collection is on every person including an individual. Rate The rate of tax on such goods and services shall be: (i) Digital Means or banking channels by payment intermediary at the rate of 1% of gross amount paid or payable; and (ii) Cash on Delivery by courier service at the rate of 2% of the gross amount paid or payable. This means that if the goods and services are digitally ordered and delivered then there would be collection/deduction of tax at the rate referred above by the 'payment intermediary' or the 'courier service', as the case may be, which will be the final tax with respect to such goods and services. Definition of digitally ordered and delivered services The term 'digitally delivered service' has specifically been defined in Section 2 of the Income Tax Ordinance 2001 as under: '(17C) 'digitally delivered services' means any service delivered over the internet or electronic networks, where the delivery is automated and requires minimal or no human intervention including music, audio and video streaming services, cloud services, online software applications services, services delivered through online inter-personal interaction i.e., tele medicines, e-learning etc., online banking services, architectural design services, research and consultancy reports, accounting services in the form of digital files or any other online facility'. The definition is very wide. For example, the term such as 'online software applications services' would need to be properly identified. Furthermore, the concept of 'no or minimal human interventions' does not tie up with the overall perspective for services such as 'online inter personal interaction', 'e-learning', tele-medicine, etc. In the context of international transactions this has been defined as: Digitally delivered services, in an international context, refer to services that are traded internationally and delivered remotely over computer networks. This encompasses a wide range of services that can be transmitted electronically, including those related to information and communication technology (ICT), audiovisuals, and other digital content. Essentially, it's about the international exchange of services where the service provider and the consumer are not physically located in the same place, and the transaction is facilitated through digital means. These issues do not arise internationally as there is no concept of final tax in those regimes. (To be continued) Copyright Business Recorder, 2025
Express Tribune
11-06-2025
- Business
- Express Tribune
'Tax physical retailers, not budding e-commerce'
Listen to article Tech experts have pleaded for the withdrawal of taxes on the IT sector, digital services, and e-commerce to maintain momentum in digital transformation and economic documentation. They urged the government to support sectors that bring in foreign exchange and investment, generate employment, and contribute tax revenue, rather than restricting growth through discouraging tax measures. However, they praised the government for allocating funds for IT infrastructure development and human resource training. Pakistan Freelancers Association (PAFLA) Chairman and Executive Member of Digital Nation Pakistan, Ibrahim Amin, highlighted the importance of policy continuity. He suggested that the government extend the 0.25% Final Tax Regime for freelancers and IT exporters until 2035 to boost confidence, encourage compliance, and enhance remittances. He said the proposed 5% tax on social media advertising could indirectly affect the income of IT companies and freelancers, which may negatively impact IT foreign exchange inflows. "As per estimates, IT exports will surge to over $3.5-$4 billion, and remittances from freelancers will increase to more than $500 million by the end of the current financial year. If we want to sustain this growth, the government, along with stakeholders, should support these sectors with tax exemptions and incentives," he said. The services sector has shown steady growth in IT and e-commerce. In May 2025 alone, 718 new companies were registered in these sectors, according to data released by the Securities and Exchange Commission of Pakistan (SECP). Saad Shah, CEO of Ucaaza retail chain and e-commerce storesaid the introduction of new taxes on e-commerce customers and vendors could slow down the sector's growth and its contribution to the broader economy, including digitisation and documentation. He noted that e-commerce still holds an insignificant share of the overall retail market, but its rapid expansion is attracting both local and foreign investment. However, the new taxes will shake the confidence of major stakeholders in Pakistan's e-commerce ecosystem. He pointed out that a significant segment of e-commerce contributes tax revenues, unlike the wider retail sector comprising shopping centres and wholesale markets. He added that instead of broadening the tax base, the government is overburdening existing taxpayers. The government has introduced the Digital Presence Proceeds Tax Act, 2025, in the finance bill. It targets entities with significant digital sales in Pakistan conducted through foreign-registered companies. Under this act, a 5% tax will be levied on the invoiced amount for goods and services. Additionally, the withholding tax rate on online and e-commerce transactions has increased from 1% to 2%, while an 18% GST has been imposed on goods purchased via local e-commerce vendors. Mehwish Salman Ali, a tech expert and member of the P@SHA committee, urged the government to strengthen the IT and digital business ecosystem through favourable policies, including tax exemptions and incentives. She warned that if government policies discourage investors and business owners, job creation would be affected, and ultimately the fruits of training new talent would not be reaped at an optimal level. She praised the allocation of Rs4.3 billion for the capacity building and skill development of 161,500 students, including 56,000 in IT-related fields. The IT industry is facing a serious shortage of human resources, and investing in youth to equip them with emerging skills is crucial, she added.
Business Recorder
10-06-2025
- Business
- Business Recorder
Taxing the digital frontier: Pakistan's bold move to tap e-commerce and online revenues
In a landmark shift to modernize tax collection and close long-standing loopholes, Pakistan's 2025–26 federal budget introduces the Digital Presence Proceeds Tax Act, 2025 – a targeted move to tax revenues generated by foreign digital platforms and online vendors operating in Pakistan without a physical presence. Part of this act is the digital transactions proceeds levy - a 5% withholding levy that will be applied to payments made to domestic and international digital vendors (e.g., Amazon, Google, Facebook, Netflix, Daraz, Temu, PakWheels) for goods or services delivered to Pakistani consumers. The levy will apply to both physical and digital goods/services, including streaming, cloud computing, e‑learning, consultancy, online banking, architectural design, and other digitally delivered services As per earlier reports, banks, fintech firms, and payment gateways are mandated to deduct the 5% at source when money is transferred to vendors, and must report these deductions quarterly to the FBR. Platforms qualify for the levy if they generate more than Rs 1 million annually from Pakistani users, or have a 'significant digital footprint'. Separately, a new standard VAT is being proposed for online marketplaces facilitating the sale of both goods and services (e.g., Daraz, OLX, Zameen, PakWheels) which aims to standardize tax treatment and close revenue gaps—especially for platforms acting as intermediaries. This will be collected by the logistics firms delivering the goods. A key part of the budget is its focus on e-commerce platforms using cash-on-delivery (COD), a popular but loosely regulated channel. Foreign vendors relying on COD logistics to reach Pakistani buyers will no longer remain invisible to tax authorities. Their proceeds will now be within the tax net, aligning their obligations with those of domestic businesses. The budget also introduces enforcement mechanisms such as track-and-trace systems, barcodes, and tax stamps to ensure compliance. By leveraging technology and data, the FBR aims to build capacity to monitor digital transactions and enforce this new regime effectively. Significance of the law The new law marks a critical step toward recognizing the realities of the modern economy, where global tech giants and cross-border sellers reap substantial revenues from Pakistani consumers but contribute little to the national tax base. By establishing 'digital presence' as a taxable nexus, the government aims to impose a Digital Services Tax (DST) on companies earning income through digital channels – be it through apps, marketplaces, streaming services, or cloud-based software. In a global context, Pakistan joins countries like India, the UK, and members of the EU that have already implemented digital taxation policies to claim their fair share from the borderless digital economy. While the OECD continues to negotiate a unified global tax framework, unilateral measures like this are increasingly seen as essential tools for emerging economies struggling with revenue shortfalls. However, the law's success will depend on the implementation capacity of tax authorities, coordination with financial and logistics intermediaries, and the willingness of global platforms to comply – or face potential restrictions.
