The Pakistan federal government has rescinded a recent move to impose a 5% tax on large foreign e-commerce players such as Temu, SHEIN, and AliExpress. The eleventh-hour decision comes in the face of growing economic challenges and aims to restore cheap prices for consumers who have increasingly shifted towards foreign markets for price competition on items. The decision, taken in the form of a formal notification by the Federal Board of Revenue (FBR), declares the 5% Digital Presence Proceeds Tax introduced in the 2025-26 budget will no longer be levied on goods and services bought online from abroad.
This imposition had caused a sudden spurt in price of the products on these platforms, which was annoying the online consumers as well as the local resellers. With the government’s action being in force since July 1, 2025, online consumers in Pakistan are going to experience price relief—though not full rollback of pre-budget prices due to the continuation of 18% sales tax.
Introduction
Pakistan’s online shoppers were rudely awakened when international sites like SHEIN, AliExpress, and Temu raised prices following the government’s announcement of the 2025–26 budget. Most of this hike resulted from the imposition of a new 5% tax on foreign digital services providers offering products to Pakistani shoppers. To a country progressively reliant on foreign goods—whether fashion, tech accessories, or household goods—this was a huge wake-up call.
But in a surprise policy turnaround, the federal government has since retreated from imposing this tax. The turnaround, aimed at facilitating more simplified international trade relations, especially with the United States, is a welcome relief. For cheap fast-fashion retailers like SHEIN and Temu, which deal in affordable fast fashion and everyday essentials, the pricing model is expected to stabilize to some extent—though the 18% sales tax remains in force.
This pullback impacts these popular destinations not only but also establishes a precedent for how Pakistan should conduct digital commerce in an increasingly connected world. This, thus, is an increasingly open approach to cross-border e-commerce, promoting digital consumption and even new entrants into the Pakistani market.
Background of the Taxation Policy
In order to comprehend why this about-face on the tax is so problematic, we have to turn back to its origins. In mid-2025, Pakistan’s government enacted the Digital Presence Proceeds Tax Act to raise revenues from foreign businesses conducting business digitally in the nation’s consumer market. The Act levied 5% on proceeds from digitally supplied goods and services from outside the country.
The idea was to ensure that foreign websites, which were benefiting from the growth of a Pakistani consumer market, were giving a fair percentage to the national coffers. This policy shift, much as it was motivated by fiscal sense, did not take into account the price responsiveness of Pakistani consumers. Overnight, that $20 dress from SHEIN or from that $5 gadget from AliExpress had unanticipated price hikes.
Not just the consumers felt the pinch, but also local entrepreneurs who re-sold products of these sites saw their profit margins dwindle. Social media platforms were abuzz with customer grievances, and a large number of them started looking for alternatives, such as local bazaars that could barely match the variety and prices these giants had once offered.
Within weeks, it was clear that the policy, if well-intentioned, was actually hurting the very online world it was intended to regulate. With online shopping increasingly at the heart of twenty-first-century trade, especially among younger generations, the backlash served to underscore the necessity for this tax to be reconsidered.
Official Notice by the FBR
On 1st July 2025, there was a sudden announcement from the Federal Board of Revenue (FBR) that sent everything into disarray. Following the directive of Section 15 of Digital Presence Proceeds Tax Act, 2025, the FBR declared that the 5% tax was no longer going to be levied on digitally supplied foreign goods and services.
The notice, concise and unequivocal, read: “The Digital Presence Proceeds Tax shall not be chargeable on digitally ordered goods and services supplied from overseas, by any person, which are chargeable under the aforesaid Act.”.
This means foreign sources of e-commerce transactions are to be exempted from the 5% tax from the beginning of the 2025–26 financial year. This also means foreign digital companies, even though they have no place of location, have a big role to play in consumer satisfaction and therefore need to be approached with a globally competitive attitude.
In practical terms, what the FBR order does is to prevent places like Temu and SHEIN from transferring this tax on their prices to Pakistani consumers. And while the relief is not total (since the 18% sales tax continues to be applicable), it’s a step towards reducing the cost burden on terminal consumers.
Reason For the Tax Reversal
You ask why the U-turn? It is economic and diplomatic strategy. The tax rollback, as per government officials and financial experts, is directly related to Pakistan’s trade talks with the United States.
The U.S., being the hub of the majority of the leading tech companies and online shopping websites, has been said to be urging its partner nations to implement policies facilitating cross-border e-commerce. Pakistan’s move to exempt the tax is viewed as a gesture of goodwill to ease trade talks and facilitate greater economic cooperation between the nations. Moreover, the Pakistani economy is being rebuilt, and the authorities are aware that excessive regulation, particularly of cyber imports, would deter innovation and damage the public mood. The international trend is towards liberalization and not controlling e-commerce, and this policy change is Pakistan’s attempt to join the bandwagon. Aside from geopolitics, the turnaround is a bid to appease public opinion. Social media voices, online marketplaces, and Internet forums all weighed in. A government perceived to be responsive to the consumer tastes of the digital era is a government perceived to be progressive—particularly among the youth, who are the overwhelming online consumers.