A new bill could cause businesses with e-commerce operations to suffer as lawmakers in Islamabad are considering imposing a 20 percent income tax on offshore digital services. According to reports, the government might also introduce a ten-year prison sentence for individuals who commit tax fraud and allow ‘junior’ Federal Board of Revenue (FBR) officials to arrest suspects at their discretion.

 

Islamabad could, as a result, grant FBR officers the authority to request that certain individuals be placed on the Exit Control List (ECL) while under investigation, allowing authorities to stop suspects from leaving the country before the resolution of their cases.

 

It could also be beneficial for the government, which has long struggled with individuals fleeing the country during or prior to their investigation. 

 

A notable example is the escape of Deputy Commissioner Tashfeen Alam of Naushahro Froze, who fled Pakistan to Azerbaijan after potentially embezzling two billion rupees from the budget allocated to the Sukkur-Hyderabad motorway.

 

According to reports, officials from the government have revealed that Islamabad is considering increasing the penalties for non-filers and those who commit tax fraud. This development is not a surprise, as Prime Minister Shehbaz Sharif and Finance Minister Muhammad Aurangzeb have developed a hostile stance against all those who deliberately refuse to comply with taxation laws.

 

If the proposed changes take effect, authorities will also prevent individuals who are restricted from making property transactions and purchasing motor vehicles from buying tractors.

 

Reports have claimed that the bill only needs the approval of the Pakistan Peoples Party (PPP) to get passed. One of the proposals of the bill might financially hurt e-commerce stores in Pakistan.

 

The government’s decision to consider doubling the income tax rate on digital service fees might raise the costs of online advertising, website maintenance and email marketing. This might be financially unsustainable for small e-commerce stores that utilise these services. 

 

A significant number of businesses run on slim margins as a result of the high level of competition in certain industries. For example, businesses that could be hurt are those that provide undifferentiated goods and services via their e-commerce stores. These include goods such as basic clothing and electronic accessories.

 

Business owners who are under investigation and need to travel extensively for work may also find their operations severely hindered. The government might have to consider relaxing the conditions that place such business owners on the ECL, as this could inadvertently hurt Pakistan’s economy.