Following the reversal of five per cent Digital Presence Proceed Tax on overseas vendors with retrospective effect from July 1, prices of goods that were hiked on popular international digital retail platforms like Temu, Shein and AliExpress are now expected to decline. The tax was initially introduced in the federal budget announced in June.

Stakeholders in virtual markets and e-commerce had anticipated a gradual stabilisation of prices on international online retail platforms even before the recent announcement by tax authorities. However, none expect a full return to pre-budget levels.

While they foresee some price moderation, they remain cautious about the pace of recovery in this sphere, noting that digital retailers, whose customer base was significantly eroded due to price escalation, are unlikely to regain their full clientele in the near term.

Meanwhile, the notification (SRO No 1366(l)2025), available on the Federal Board of Revenue (FBR) website, does not indicate any revision to the duty-free limit for online purchases. As per the federal budget, this limit was reduced from Rs5,000 to Rs500. Consequently, the revised tariff regime applies to all goods and services delivered from abroad valued above Rs500. Prior to the budget, purchases under Rs5,000 were exempt from duties, an incentive that had attracted price-sensitive Pakistani customers to international online shopping platforms.

The annual number of online transactions grew by 195pc between 2020 and 2024, while the total value of those transactions surged by 402pc

Last week, the FBR offered partial relief from harsh budgetary measures to online international retail firms rapidly expanding their footprint in Pakistan’s digital marketplace. The withdrawn tax had reportedly been introduced to address concerns raised by local e-commerce companies, who argue that they were being unfairly undercut due to a heavier tax burden compared to their foreign competitors.

“Yes, we lost ground to relatively new foreign entrants over the past two years. The odds were stacked against us from the start”, said an executive at a leading online retail platform, speaking on condition of anonymity. “We were paying 25pc in taxes, while foreign companies sold in Pakistan via social media without facing any local tax obligations. Their growth came at our expense.”

He confirmed a surge in sales volume following the budget, despite new measures requiring local platforms to work exclusively with tax-compliant suppliers. “These requirements have increased our cost of doing business, which has to be reflected in prices. Even so, both website traffic and order volumes rose in July,” he added.

Commenting on the requirement for online businesses to transact exclusively with tax filers, Shujaat Ameer, Chief Business Officer, Fetch Sky Technologies, called for a more digital-friendly approach from policymakers. “Building a venture in cyberspace is challenging, as often you need to compete globally. Imposing stricter compliance on e-commerce platforms, while cash-based offline businesses continue operating with little oversight, only adds to the burden on those trying to innovate,” he remarked.

Expressing concern, he added, “The current policy mindset, shaped more by tax enforcers than visionary economic leadership, risks slowing the positive momentum of digital business growth in Pakistan.”

Many online shoppers were left shocked by the multifold increase in prices across all categories on international online shopping platforms that had previously offered affordable options to Pakistan’s large middle-income segment. The sudden shift sparked frustration among regular buyers.

“It wasn’t just about convenience, the price difference made it worthwhile,” said a young working mother. “I used to browse these platforms daily and placed two to three orders a week. But I have stopped now. A kitchen jar I bought for Rs500 a few weeks ago is now priced at Rs2500. A watch I gifted to my partner for Rs63,000 two months back is now listed at over Rs200,000. It’s crazy”.

Digital retailers were unsure about the exact causes of the price surge, but speculated that foreign sellers may have raised prices either to pre-emptively absorb the impact of anticipated policy changes or the rising demand in Pakistan outpaced their inventory capacity, leading to shortages and inflated prices for popular items.

A member of the management team of one of the country’s largest local digital firms noted that online retailers are still evaluating the full impact of recent budgetary measures on their cost structure. “We are already seeing prices begin to creep up across various product categories listed on local digital platforms as well,” she remarked.

Mutaher Khan, co-founder of Data Darbar, a Pakistani startup tracking the country’s digital market, shared key insights along with data illustrating the sector’s rapid growth. According to figures he provided, the annual number of online transactions grew by 195pc in five years between calendar years 2020 and 2024, while the total value of those transactions surged by 402pc during the same period.

In 2020, there were 14.6 million online transactions amounting to Rs43.4 billion. The following year saw a more than twofold increase in both volume and value, with the upward trend continuing steadily. By 2024, the number of online transactions had reached 43.1m, with a total throughput of Rs218.1bn, highlighting the accelerating adoption of digital commerce in Pakistan.

Several key members of the government’s economic team were approached for comment on the matter, but no responses had been received by the time this report was filed.

Published in Dawn, The Business and Finance Weekly, August 4th, 2025