Is there 18% sales tax on everything I sell online?

Two numbers show up when online sellers read about sales tax: 18% and 2%. They come from different parts of the Sales Tax Act and do different jobs. The 18% is the standard rate of the tax itself. The 2% is the share of each online sale that a courier or payment intermediary holds back and pays to the government on the seller’s behalf.

What does the law say about 18%?

Section 3(1) of the Sales Tax Act charges sales tax at eighteen per cent of the value of taxable supplies made by a registered person in the course or furtherance of a taxable activity, and of goods imported into Pakistan. Section 2(46) defines the value of a supply as the consideration in money the supplier receives, excluding the amount of tax. Section 2(25) defines a registered person to include a person who is liable to be registered, not only one who already holds a registration.

The 18% is the default, not a universal rate. Section 3 itself carves out:

• Third Schedule goods. Section 3(2)(a) charges these at 18% of the retail price, which the manufacturer or importer must print on the pack.
• Eighth Schedule goods. Section 3(2)(aa) charges these at the rates and conditions set in that Schedule.
• Exempt goods. Section 13(1) exempts goods specified in the Sixth Schedule, subject to conditions.

Whether your product sits in one of these schedules decides whether 18% applies at all. The schedules are long and are not reproduced here.

Where does the 2% come from?

Section 3(3)(c), added by the Finance Act, 2025, deals with digitally ordered taxable goods sold through an online marketplace, website or software application from within Pakistan. It puts the liability to collect and pay the tax on the payment intermediary (a bank, financial institution, licensed exchange company or payment gateway) where the buyer pays digitally, and on the courier where goods go out on cash on delivery, “at the rates provided in the Eleventh Schedule”.

Serial 8 of the Eleventh Schedule sets that rate. The withholding agents are “Payment intermediaries and couriers in respect of digitally ordered goods from within Pakistan”. The supplier category is persons supplying digitally ordered goods from within Pakistan through an online marketplace, website or software applications. The rate is 2% of gross value of supplies.

How do the 18% and the 2% relate?

That depends on who the seller is. Section 3(7A) says the tax withheld under the Eleventh Schedule by the payment intermediary or courier is the final discharge of tax liability on taxable supplies of digitally ordered goods by two groups only.

Seller	What the Act says about the 2%
Cottage industry, as defined in section 2(5AB)	Final discharge of sales tax on those online supplies, section 3(7A)(i)
Retailer other than a Tier-1 retailer	Final discharge of sales tax on those online supplies, section 3(7A)(ii)
Any other registered person, such as a manufacturer that is not a cottage industry, a Tier-1 retailer, a wholesaler or an importer	Not made final. Liability is worked out under section 7: output tax at the applicable rate, less input tax

For the third group, section 7(1) lets a registered person deduct input tax from output tax, and section 7(2) limits that to input tax backed by a tax invoice in the person’s name and registration number. The Act in this corpus does not spell out how the 2% withheld from such a seller is credited against that liability. That is covered on a separate page.

Worked example (illustrative figures)

Sana, cottage industry in Multan. She embroiders cushion covers at home and meets all four conditions in section 2(5AB). In one month her online orders total Rs. 150,000: Rs. 90,000 paid cash on delivery and Rs. 60,000 paid by card.

Step 1: courier withholds 2% of Rs. 90,000 = Rs. 1,800.

Step 2: gateway withholds 2% of Rs. 60,000 = Rs. 1,200.

Step 3: total withheld = Rs. 1,800 + Rs. 1,200 = Rs. 3,000.

Under section 3(7A)(i), the Rs. 3,000 is the final discharge of her sales tax on those online supplies. No 18% calculation follows.

Bilal, registered manufacturer in Sialkot. His firm is not a cottage industry. In one month he sells sports gloves online with a value of Rs. 500,000 before tax.

Step 1: output tax at 18% = Rs. 500,000 x 18% = Rs. 90,000. Buyers pay Rs. 590,000 in total.

Step 2: input tax on invoiced purchases for the month, say Rs. 40,000.

Step 3: under section 7, Rs. 90,000 minus Rs. 40,000 = Rs. 50,000.

Step 4: the courier and gateway also withhold 2% of gross value. Serial 8 does not define “gross value”. If it is taken on the full Rs. 590,000 buyers paid, 2% is Rs. 11,800. If it is taken on the Rs. 500,000 value, 2% is Rs. 10,000. Section 3(7A) does not make this amount final for Bilal.

What if …?

What if my goods are in the Third Schedule? The Eleventh Schedule’s opening words say withholding under the Schedule does not apply to the goods and supplies listed in the clauses after the Table. Clause (vi) lists goods specified in the Third Schedule. Other listed items include vegetable ghee and cooking oil, and supplies by importers who paid value addition tax at import.

What if my buyer is a registered business? Clause (viii) after the Table excludes supplies made by an Active Taxpayer to another registered person, except the supplies at serial numbers 5, 7, 9, 10, 11, 12 and 13. Serial 8 is not in that exception, so on the text the 2% withholding does not apply to such a sale.

What if I sell services, not goods? Section 3(3)(c) and serial 8 both speak of digitally ordered goods. Sales tax on most services is levied under provincial laws, which are outside this corpus.

Common mistakes

• Adding 18% and 2% together. The Act does not create a 20% charge. The 2% is a withholding, final for some sellers and not for others.
• Applying 18% to the tax-inclusive price. Section 2(46) excludes the tax from the value.
• Assuming the 2% is always final. Section 3(7A) limits finality to cottage industry and retailers other than Tier-1.
• Assuming no tax is due until you register. Section 2(25) counts a person liable to be registered as a registered person.

What to check in the official text

Read section 3(1), 3(2), 3(3)(c) and 3(7A), then serial 8 of the Eleventh Schedule and the clauses after its Table. Check the Third, Sixth and Eighth Schedules for your goods. Section 3(2)(b) and 3(6) let the government change rates by notification, and such notifications are not held in this corpus.