IMF Recommends Sales Tax on E-Commerce, Facebook and Digital Platforms

The International Monetary Fund (IMF) has recommended that online digital platforms engaging in transactions with local consumers in Pakistan should register for sales tax. This recommendation includes e-commerce platforms such as Daraz, Homeshopping, Zameen.com, and PakWheels, as well as tech giants like Google and Facebook, which play significant roles in transactions with consumers. The IMF suggests that these platforms should also be required to register for value-added tax (VAT) and collect and remit tax for the sales of digital products/services and low-value goods (LVGs) from non-resident vendors to domestic consumers.

IMF Recommends Sales Tax on E-Commerce, Facebook and Digital Platforms

According to sources, the IMF’s recommendation refers to these platforms as intermediaries in some countries. Given the diverse range of platforms and intermediaries in the online sector, it is important to accurately identify which non-resident digital platforms should be considered the suppliers and therefore required to register and collect VAT on sales.

Generally, non-resident digital platforms that control or set essential elements of transactions between third-party vendors and purchasers, such as providing listing services and setting payment terms, would be included. Additionally, platforms involved in collecting, receiving, or charging payment for sales and transmitting payment to third-party vendors would also be included. However, platforms that simply allow vendors to list their services for sale or solely function as payment processors would not be considered digital platforms for VAT purposes.

The IMF also recommends that VAT-registered businesses continue to self-assess and remit any applicable VAT on their purchases of digital products/services and/or LVGs from non-resident vendors and non-resident digital platform operators. In cases where government departments and agents are registered for VAT, their purchases would generally be treated as business-to-business (B2B) transactions, and they would be required to self-assess and remit any applicable VAT on their purchases from non-resident vendors and digital platform operators.

To protect the integrity of the proposed simplified VAT framework, a penalty could be imposed if a person provides a VAT registration number to a non-resident vendor or operator to evade tax. If a VAT-registered business is charged VAT despite providing its VAT registration number, it would be able to request a refund from the non-resident vendor or operator, but the VAT paid in such cases would not be recoverable by claiming input tax or filing a tax paid-in error claim.

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