I have a physical shop and also sell online. Which sales tax rules apply to my online orders?

For a shopkeeper who also sells online, the Sales Tax Act asks one question first: are you a Tier-1 retailer? If you are not, sales tax on the shop is collected through your electricity bill, you are not required to register for online selling, and the 2% withheld from online orders settles the sales tax on them. If you are Tier-1, you register and pay tax at the rate that applies to your goods.

What does the law say?

Who is Tier-1. Section 2(43A) defines a Tier-1 retailer as a retailer in one or more of these categories:

Clause	Category
(a)	a unit of a national or international chain of stores
(b)	a retailer operating in an air-conditioned shopping mall, plaza or centre, excluding kiosks
(c)	cumulative electricity bill in the immediately preceding twelve consecutive months above Rs. 1,200,000
(d)	a wholesaler-cum-retailer with turnover of more than two hundred million, engaged in bulk import and supply of consumer goods to retailers and to consumers
(gb)	a retailer with turnover above Rs. 200 million, by declaration or worked back from certain income tax deducted under the Income Tax Ordinance, in the preceding twelve consecutive months
(h)	any other person or class prescribed by the Board

The Board may also exclude persons by notification. Clauses (d) and (gb) in their current form come from the Finance Act, 2026.

Retailers other than Tier-1: the shop. Section 3(9) charges these retailers through their monthly electricity bills, at 5% where the monthly bill does not exceed Rs. 20,000 and 7.5% where it does. The first proviso makes this tax additional to the tax on the electricity supply itself. Section 3(12) lets the Federal Government levy a different amount through the bill by notification; notifications are not held in this corpus.

Retailers other than Tier-1: registration. Section 14(1)(b) excludes from compulsory registration a retailer required to pay through the electricity bill under section 3(9). Section 14(1A), which requires online sellers to register, contains the same exception.

Retailers other than Tier-1: online orders. Serial 8 of the Eleventh Schedule has couriers and payment intermediaries withhold 2% of gross value of supplies of digitally ordered goods. Section 3(7A)(ii) makes that withheld tax the final discharge of tax liability on those supplies by “retailers other than tier-I retailers”.

Tier-1 retailers. Section 3(9A) says Tier-1 retailers pay sales tax at the rate applicable to the goods sold. Section 14(1A) applies to them, so they register for online selling, and section 3(7A) does not make the 2% withheld final for them.

How do the shop and the online rules fit together?

For a retailer other than Tier-1, the two collections run side by side: the electricity bill amount for the shop, and the 2% withheld on digitally ordered goods. The Act does not provide for one to be set off against the other. It also does not say that the electricity bill amount covers online sales, or that the 2% covers counter sales.

Worked example (illustrative figures)

Imran runs a shoe shop on a street market in Faisalabad, not in a mall and not part of a chain. His turnover is well below Rs. 200 million.

Step 1, Tier-1 check on electricity: his monthly bill is about Rs. 18,000. Over twelve months, Rs. 18,000 x 12 = Rs. 216,000, below Rs. 1,200,000. Not Tier-1 under clause (c), and no other category fits.

Step 2, sales tax through the bill: the bill does not exceed Rs. 20,000, so 5% applies. Rs. 18,000 x 5% = Rs. 900 for the month, on top of tax on the electricity.

Step 3, online orders for the month: Rs. 250,000 through his marketplace store and courier. 2% x Rs. 250,000 = Rs. 5,000 withheld.

Step 4, under section 3(7A)(ii), the Rs. 5,000 is the final discharge on those online supplies.

Step 5, sales tax borne through both routes for the month: Rs. 900 + Rs. 5,000 = Rs. 5,900.

What if …?

What if I move the shop into an air-conditioned mall? Clause (b) of section 2(43A) makes you Tier-1 unless you trade from a kiosk. Section 3(9A) then applies, and section 3(7A) no longer makes the 2% final.

What if the electricity supplier keeps charging me as a retailer after I become Tier-1? The second proviso to section 3(9) says the Commissioner having jurisdiction issues an order to the electricity supplier to exclude a Tier-1 retailer or a person who is not a retailer.

What if my online sales are to other shops, not the public? Section 2(28) defines a retailer as a person supplying goods to the general public for consumption. Bulk supplies to other businesses raise the wholesaler question, which is outside this page.

Common mistakes

• Assuming the shop’s electricity bill tax covers online sales. The Act treats the two separately.
• Forgetting the twelve-month bill total. Clause (c) looks at cumulative bills over twelve consecutive months, not one month.
• Assuming a small shop inside a mall is exempt from Tier-1. Only kiosks are carved out of clause (b).
• Skipping the NTN. Section 14(1B) bars marketplaces and couriers from serving a seller without one.

What to check in the official text

Read section 2(43A) for Tier-1, section 3(9), 3(9A) and 3(12) for how tax is collected from retailers, section 14(1), (1A) and (1B) for registration, and section 3(7A) with serial 8 of the Eleventh Schedule for online orders. Board notifications adding or excluding Tier-1 categories are not held in this corpus.