In a significant move impacting Pakistan’s growing e-commerce ecosystem, the government has proposed a new taxation mechanism targeting digitally ordered goods and services. The changes come under a new provision to be added via Section 6A, aimed at treating digital commerce as a distinct block of income for taxation purposes.

Until now, there was no dedicated framework to identify and tax e-commerce transactions. The proposed amendment seeks to formalize this segment and bring it into the tax net.

Online Marketplaces and Couriers to Deduct Taxes

As per the new provision, online marketplaces and courier service providers will be designated as “prescribed persons” under Section 153 of the Income Tax Ordinance. These entities will be responsible for deducting taxes on behalf of the government from payments made to vendors who sell goods or services through digital platforms.

The government has outlined specific rates for advance tax deductions on digital transactions and Cash on Delivery (COD) orders.

Tax Rates for Payments via Digital Channels

Tax Rates for Cash on Delivery (COD)

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In the most recent few months, the PTA taxes on imported cell phones have climbed dramatically. The decline of the rupee and limited State Bank reserves may be to blame for this. Therefore, the government’s current goal is to prevent imports in order to maintain economic stability. However, we won’t think it’s appropriate for a typical user who only imports phones for personal use. This is a smart step for retailers who import phones in large quantities. Anyway, we’ll talk about the new PTA taxes for the iPhone SE 2 and iPhone SE 3 in this blog.

As you can see, the tax for importing an iPhone SE is a huge PKR 50k–60k. The tax pushes the whole cost of the phone above many consumers’ means of affordability. We urge the PTA, the country’s telecom regulator, to waive or reduce tariffs for consumers who simply import smartphones for their own use.

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Increased taxes on social media platform income are in the works, as the federal government considers a proposal to raise taxes. The newly developed wave of inflation has had a negative impact on several areas of society. The increase in inflation is being justified to Pakistani citizens as a means of repaying the IMF loan.According to the foreign lender’s terms, plans are in the works to raise taxes on income over Rs1 million per year.

The IMF decides to ensure that the government adheres to strict conditionality as part of its programme. This programme has resulted in measures such as reductions in income tax credits and allowances.

According to reliable sources, an increase in taxes on income from social media sites such as online gaming, TikTok, and YouTube is also on the way.

If the taxes are applied, only time will tell. These higher levies may not be well received by content creators. This new tax scheme has the potential to be a double-edged sword. Given the new taxation policy, persons involved in the social media business may be compelled to leave the platform and seek alternative pathways for success.

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According to credible sources, the government is considering removing the sales tax on laptops and information technology (IT) equipment from the Finance Bill 2022-23.

The government is exploring tariffs and tax exemptions for the creation of Cloud Infrastructure, as well as the reduction of the Advance Income Tax (AIT) on telecom services to 8%, among other measures.

To help the IT sector, the IT and Telecom Division offered the following proposals:

1. Exemption from duties and taxes for the installation of cloud infrastructure
2. The Pakistan Software Export Board (PSEB) will receive 5% of annual IT export value for export promotion.
3. The telecom sector will be exempt from the State Bank of Pakistan’s (SBP) 100 percent LC margin legislation, which will take effect on April 7, 2022.
4. Laptops and IT equipment will be exempt from sales tax.
5. Advance Income Tax (AIT) on telecom services has been reduced to 8%.
6. Rates on communication services should be rationalised and standardized at the federal and provincial levels.

After appropriate consultation with stakeholders, Prime Minister Shehbaz Sharif has asked the Information Technology and Telecom Division to produce a strategy to increase IT and Telecom export to $ 15 billion in the next two years. He promised the IT and Telecom Division all possible cooperation in accomplishing this goal at a recent high-level meeting. The presentation was received at the eleventh hour, denying the Cabinet members adequate time to evaluate the recommendations.

The Cabinet Secretary stated that although instructions had been issued to the Ministries and Divisions to submit their summaries well in advance of the cabinet meeting and in accordance with the Rules of Business, 1973, infractions continued to occur. The Cabinet Secretary went on to say that requesting cabinet decisions based on a presentation was not permitted under the Rules of Business, 1973, because all decisions must be based on a summary.

Wherever a financial decision is requested, he indicated that the Cabinet may give its permission in principle, and that the IT and Telecom Division should submit their ideas to the Economic Coordination Committee (ECC) for comprehensive discussion after consulting with key parties. Following that, the ECC’s decision would be presented to the Cabinet for approval.

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The government put a ban on the import of roughly 800 products belonging to 33 categories, including food products, on Thursday in an attempt to control the country’s depleting reserves.

Mobile phones used to be classified as prohibited products, according to the statement, but the authorities altered their minds, opting to double import duties and taxes rather than expressly prohibiting their entry, according to the high authorities. Late at night, the commerce ministry issued SRO598 of 2022, a four-page statement amending import policy directions.

Taxes on fully flipped down (CKD) automobiles have also been raised, and both decisions are expected to be implemented on Friday, according to government sources.

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To help stabilise Pakistan’s worsening balance of payments, the government is considering doubling the regulatory tariff on mobile phone imports. According to sources, the increased charges on a single device will range from Rs. 6,000 to Rs. 44,000. The duty structure is divided into five tax slabs.

The Rs. 3000 mobile phone is valued at $ 30-100. The duty is proposed at Rs. 6ooo, the mobile set at Rs. 7500, based on a $ 101-200 worth. On a mobile phone worth Rs. 11000 and valued at $ 201-350, a levy of Rs. 15ooo is recommended. The suggested duty is Rs. 22000 on a Rs. 15000 mobile phone with a $ 351-500 valuation The duty is recommended at Rs. 30,000 on a mobile set for Rs. 22000, and Rs. 44,ooo on a mobile set worth more than $ 500.

It is also considering raising regulatory duties on a variety of other items in order to avoid the financial collapse feared by many experts. The regulatory duty on machinery will be raised by 10%, while the duty on household appliances will be raised to 50%.

Additionally, a 30 percent rise would be placed on the import of power generation apparatus, a ten percent increase on the import of steel products, and a 40 percent increase in the regulatory tax on ceramics.

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Mr. Zeeshan Ahmed, Country General Manager for Rain Financial Inc., claimed that simply allowing crypto trading in Pakistan could produce at least $100 million in taxes in a year – or Rs. 20 billion.

Mr. Ahmed was referring to a Chainalysis analysis that states Pakistani crypto dealers made $650 million in profits from July 2020 to June 2021, and that if taxed at just 15% (India levies crypto gains at 30%), the government could earn more than $100 million in taxes, or Rs. 20 billion. If you’re curious about the size of this sum, consider that Pakistan’s whole salaried class paid roughly Rs. 151 billion in taxes in 2020-21.

Not to mention that the $650 million in earnings made by Pakistani crypto dealers, or Rs. 20 billion in potential taxes per year, is a modest estimate given that trading is illegal in Pakistan and the Financial Investigation Agency (FIA) has been on the hunt for crypto traders recently.If allowed and legalised, profits (and, eventually, taxes) might be several times higher than what is indicated above.

Rain Financial Inc, which has crypto exchange licences in Bahrain and Turkey, wants to enter the Pakistani market as well, but unlike other exchanges, it will only do so if crypto trading is legalised in Pakistan.

The Rain team has reportedly met with a number of stakeholders, including the State Bank, SECP, Ministry of Finance, FBR, MoITT, and other bodies, for this purpose. According to Ms. Aatiqa Lateef, Rain Financial’s Director of Public Policy (Pakistan), the meetings were fruitful, and she expects positive things to happen around the legalisation of crypto trading in Pakistan.

In case you didn’t know, cryptocurrency trading is illegal in Pakistan. This implies you won’t be able to trade crypto assets on an exchange or even privately with another individual in the nation. While it is illegal to trade crypto on platforms like Binance (another crypto exchange), Pakistanis have been doing so on a regular basis, and if caught, the FIA might put the dealers behind prison.

FIA has reportedly lodged thousands of FIRs against individuals and detained a few sellers in the recent past. Rain Financial is leading the charge to correct this. It hopes to persuade Pakistan’s regulators to legalise cryptocurrency trading, and then enter the Pakistani market to offer its services.

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The Ministry of Information Technology and Telecommunication has proposed that the government eliminate regulatory duties on telecom equipment imports, provide a tax credit for new IT graduates, simplify taxation in the sector, and reduce taxes on mobile phones in order to make doing business in the country easier.

Official sources told that the recommendations were discussed during a meeting between top officials from the IT Ministry and the Federal Board of Revenue (FBR). According to sources, the Ministry has divided the recommendations into priority one and priority two in order to help the industry and avoid affecting income generation methods.

The Ministry has suggested eliminating the regulatory tariff on telecom equipment imports as a top priority. A tax credit for new IT graduates has also been proposed in the same category. In the same vein, the government has recommended simplifying the tax structure for the sector, which is seen as a major roadblock to its expansion.
However, in order to achieve the digital goal, the Ministry has proposed lowering taxes on mobile handsets in category two.

A cut in mobile phone taxation has also been proposed by the Senate Standing Committee. The committee was informed that a mobile phone worth $500 is subject to a tax of Rs. 80,000. A tax exemption for laptops was also advocated by the committee. The FBR has been urged to lower the tax on imported phones, according to Secretary IT.

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The telecom industry said that advance income tax made mobile phone ownership and internet usage unaffordable, especially for low-income people. The telecom industry has now requested that the government cut the advance income tax in the budget proposal for 2022-23.

“The industry’s profitability was being harmed by the current 15% taxation, which hampered the business case for network expansions and service upgrades.” In a letter to the Ministry of IT and Telecom, the industry stated that “it impedes the affordability of mobile ownership and internet services, which are vital for the entire population in this age, as well as the country’s economic progress.”

Pakistan has one of the world’s highest telecom tax rates. The country has the second-highest telecom taxation in South Asia, at 34.5 percent, including 15 percent advance income tax and 19.5 percent GST. Finance Act 2021 cut advance income tax from 12.5 percent to 10 percent for FY 2021, with a promise to 8 percent from then on. The decision was reversed six months later, without proper thought for the long-term consequences.

The AIT rate has been raised from 10% to 15% under the Finance (supplementary) Act of 2022, bringing the total tax on over 193 million telecom subscribers to nearly 35%.

“As a policy, AIT under Section 236 of the Income Tax Ordinance, 2001 (ITO) should be gradually phased out because it disproportionately affects the subscriber base below the taxable limit, and efforts should be focused on more direct taxation measures aimed at laconic, rather than expenditure on an essential service,” the sector stakeholders wrote in the letter.

The telecom industry also urged the State Bank of Pakistan to lift the 100% cash margin restriction on telecom equipment imports.

“The telecom industry is completely reliant on its equipment to meet its quality-of-service and network-expansion commitments, as specified by our various licences.” The stakeholders stated that “telecom equipment is not a luxury item.”

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It has been revealed that telecom cellular firms will put pressure on the government to reverse the rise in withholding tax on telecom services, which has a huge impact on the operators of roughly Rs. 18 billion per year.

It is seen by the industry as harmful to the economy’s digitalization effort and as undermining the aim of a “Digital Pakistan.” Sources in the cellular industry told, once the new ministries of information technology and finance take office, full budget plans will be shared.

In the previous budget, the previous administration set a strategy for the telecom sector, which included lowering the withholding tax from 12.5 percent to 10 percent, with the goal of lowering it to 8% by July 1, 2022. However, in January 2022, the administration overturned its choices.

It has important effects for the telecom sector, according to sources, and the newly elected administration would be asked to decrease the withholding tax.

In Pakistan, only about 2.9 million persons, or one percent of the population, file income tax returns, out of a total population of 220 million. Despite the fact that the majority of the country’s population has non-taxable income, they are subjected to withholding tax, which they are unable to claim.

“To enable investment in the telecom sector, the next government should assure continuity in policies,” the official added.

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