Is the 2% sales tax withheld on my online orders my full liability, or can I adjust it against input tax?

The 2% that a courier or payment gateway holds back from your online sales is final for some sellers and not for others. The Sales Tax Act draws the line by type of seller, not by amount. If you fall outside the two named groups, the 2% does not settle your sales tax, and your liability is worked out the ordinary way.

What does the law say?

The withholding. Section 3(3)(c) puts the liability to collect and pay sales tax on digitally ordered goods on the payment intermediary, where payment is digital, and on the courier, where goods go cash on delivery. Serial 8 of the Eleventh Schedule sets the rate at 2% of gross value of supplies.

Who it is final for. Section 3(7A), added by the Finance Act, 2025, says the tax withheld under the Eleventh Schedule by the payment intermediary or courier “shall be final discharge of tax liability in respect of taxable supplies of digitally ordered goods by”:

1. a cottage industry as defined in clause (5AB) of section 2; and
2. retailers other than Tier-1 retailers.

Everyone else. A registered person outside those two groups is not covered by section 3(7A). Section 7(1) lets such a person deduct input tax paid or payable for the tax period from the output tax due. Section 7(2)(i) allows the deduction only where the person holds a tax invoice in his name bearing his registration number.

Why the withheld tax is not “input tax”

Section 2(14) defines input tax as tax levied on the supply of goods to the person, on goods the person imports, excise in sales tax mode on goods or services acquired, provincial sales tax on services received (subject to exclusions), and tax on supplies received under the AJK version of the Act. Tax withheld from your own sales is none of these. So the real question for a registered seller is not whether the 2% is input tax, but whether and how it is set against output tax.

How does it work in practice for other registered sellers?

This is where the corpus runs out. The Sales Tax Act, amended to 30 June 2026, does not contain a provision stating how the 2% withheld under serial 8 is credited to a seller for whom it is not final.

The closest text is in rule 18 of the Sales Tax Rules, 2006, in the edition amended to 30 June 2025. Rule 18(4A) speaks of a “claim of credit of sales tax withheld” and a “reduction in output tax”, and denies it where the seller declares the withheld amount but not the corresponding sales. Rule 18(5)(ii) gives a provisional reduction in output tax where the buyer has not yet declared the withheld amount. Two cautions apply:

• These rules describe withholding by a buyer acting as withholding agent. In e-commerce, the courier or gateway is not the buyer.
• Serial 8 in its current form was substituted by the Finance Act, 2025. The rules edition held here does not refer to it.

Section 26 does require every payment intermediary and courier to file a monthly statement showing, supplier by supplier, the amount paid and tax due. That creates a record of what was withheld from you, but the section does not itself say how you claim it.

Worked example (illustrative figures)

Hina runs a leather bag workshop in Karachi with 18 workers, so she is not a cottage industry under section 2(5AB)(c). She is a registered manufacturer. In one month:

Step 1, value of online sales before tax: Rs. 800,000.

Step 2, output tax at 18%: Rs. 800,000 x 18% = Rs. 144,000. Buyers pay Rs. 944,000.

Step 3, input tax on invoiced purchases of leather and fittings: Rs. 60,000.

Step 4, section 7 result: Rs. 144,000 minus Rs. 60,000 = Rs. 84,000.

Step 5, withheld by courier and gateway: serial 8 does not define “gross value”. Taken on the full Rs. 944,000 buyers paid, 2% is Rs. 18,880.

Step 6: if the rule 18 approach of reducing output tax by the withheld amount were applied, the balance would be Rs. 84,000 minus Rs. 18,880 = Rs. 65,120. The Act does not confirm that this is how serial 8 withholding is treated, so treat Step 6 as unresolved rather than settled.

Compare Sana, a home embroiderer in Multan who meets all four cottage industry conditions. On Rs. 150,000 of online orders, 2% is Rs. 3,000. Under section 3(7A)(i) that Rs. 3,000 settles her sales tax on those supplies. There is no Step 3 or Step 4 for her.

What if …?

What if I am a retailer but also Tier-1? Section 3(7A)(ii) excludes Tier-1 retailers, so the 2% is not final. Section 3(9A) says Tier-1 retailers pay sales tax at the rate applicable to the goods sold.

What if I stop meeting a cottage industry condition mid-year? The Act does not say from when finality stops. Section 2(5AB)(d) measures turnover annually but does not define the year.

What if my courier withholds but does not deposit the tax? That is a separate question about the withholding agent’s failure, covered on another page.

Common mistakes

• Treating the 2% as final for every seller. Section 3(7A) limits it to two groups.
• Calling the withheld amount input tax. Section 2(14) does not include it.
• Assuming the rules settle the credit. The rules edition in this corpus was written for buyer withholding and predates serial 8 as it now reads.
• Forgetting the invoice condition. Section 7(2)(i) requires a tax invoice in your name and registration number to deduct input tax.

What to check in the official text

Read section 3(7A) and serial 8 of the Eleventh Schedule for finality, section 7 for the output and input tax calculation, and section 2(14) for what counts as input tax. Check the definition of Tier-1 retailer in section 2(43A). For the crediting mechanism, look for Sales Tax Rules amendments or Board notifications issued after 30 June 2025, which this corpus does not hold.