Why this post matters

In the earlier posts of my series, I looked at the tax changes from the perspective of sellers. This post shifts the lens significantly.

The most consequential change in Pakistan’s digital commerce taxation framework does not target individuals or small businesses directly. Instead, it targets platforms such as marketplaces, payment processors, and logistics intermediaries. Specifically, the law now turns these entities into enforcement points. Understanding this shift explains why compliance is accelerating even without loud crackdowns from the FBR.

The strategic pivot: enforcement through infrastructure

Rather than chasing hundreds of thousands of individual sellers, the state designed the tax system to work through a much smaller number of intermediaries. I believe this is a permanent structural decision.

Large marketplaces, payment gateways, banks, and courier companies already sit at critical points in the transaction flow. Consequently, through legal amendments like Section 236H, the state formally designates these entities as withholding agents. This moves tax collection upstream, specifically closer to where money changes hands. By making these platforms responsible for deducting advance income tax, the government ensures it captures revenue at the source.

What “withholding agent” actually means in practice

When the law designates a platform as a withholding agent, it imposes concrete legal responsibilities that go beyond simply facilitating transactions.

In practice, this now includes several tasks:

• Verifying seller identity: Platforms must collect CNIC or NTN details as a prerequisite for doing business.

• Deducting advance tax: Agents must deduct tax at prescribed rates (1% for digital payments or 2% for Cash on Delivery) from the gross amount before the seller receives the funds.

• Maintaining records: Entities must keep transaction level records for specified periods.

• Reporting data: Platforms must report aggregated data directly to the Federal Board of Revenue.

From the platform’s point of view, this creates a compliance burden. However, from the state’s point of view, it provides systemic leverage.

Marketplaces: from neutral venues to regulated actors

Marketplaces have historically positioned themselves as neutral connectors between buyers and sellers. Nevertheless, the new framework, particularly the obligations under Section 236I, fundamentally weakens that neutrality.

By embedding tax deduction and reporting into payout systems, marketplaces become an integral part of the regulatory apparatus. This shift has several immediate implications:

1. Seller onboarding becomes stricter because NTN verification is now a standard step.

2. Informal sellers face friction earlier since they cannot access full platform features without registration.

3. Platforms must invest in compliance tooling to manage deductions and reporting accurately.

Payment processors and wallets: the quiet pressure point

Payment intermediaries represent an especially powerful enforcement node. Digital wallets, payment gateways, and banks have visibility into transaction volumes and frequency. Moreover, they can spot patterns that might be inconsistent with a seller’s declared income.

As data sharing mechanisms mature, the FBR can automatically cross reference these digital signals. Therefore, the enforcement model begins to rely less on individual audits and more on automated pattern recognition across various data sources.

Couriers and Cash on Delivery are not exempt

There is a persistent belief that Cash on Delivery transactions sit outside the digital tax net. However, that belief is now legally outdated.

The law explicitly classifies courier companies that reconcile COD payments as withholding agents. Because they maintain seller ledgers and interface with banking channels, they are now responsible for deducting the 2% advance tax before remitting any cash to the seller. Consequently, COD based sellers are not immune. They are simply one step removed from a direct digital trail but remain firmly within the compliance chain.

Why platforms are unlikely to resist

From the outside, it may seem that platforms would push back against these responsibilities. In reality, meaningful resistance is limited for three main reasons:

• Regulatory certainty: Compliance offers a clear operating framework for the business.

• Risk management: It reduces the risk of sudden enforcement actions against the platform itself.

• Global standards: These rules align with international best practices, which is crucial for attracting global investment.

While the operational costs are real, the strategic incentives strongly favor adaptation.

The second order effect: normalization of formality

When a platform builds tax compliance into its core operations, formality becomes the default experience. New sellers encounter registration and automatic deductions from their very first sale. As a result, informality becomes the exception rather than the norm. This does not happen through punitive bans but through designed friction in the user journey. This is how systems change widespread behavior without announcing it loudly.

What sellers should infer from this shift

The key takeaway for you as a seller is strategic. If the law compels platforms to act as tax gatekeepers, then the strategy of staying informal becomes structurally harder over time. The path of least resistance for growth increasingly runs through the formal system.

A Critical Implication: Sellers who fail to provide their NTN and become filers on the Active Taxpayer List force platforms to apply a much higher withholding rate. In some cases, this can reach 15%. This is not a platform choice but a legal requirement that makes informality financially punitive.

Where this leaves the ecosystem

This framework systematically favors scalable, documented businesses that can absorb compliance costs. In contrast, it structurally disadvantages operational opacity and business models built primarily on regulatory ambiguity. Whether this ultimately strengthens or constrains the ecosystem depends on execution, but the direction is now clear.

What comes next in this series

In the next post, I will step back and ask a harder question:

Does this driven formalization actually help small businesses grow, or does it quietly squeeze them out?

That question matters more than any individual tax rule.