E-commerce has emerged as an important part of the Pakistani economy in recent years, as online shopping has become a popular option among buyers. However, the implementation of cash on delivery tax in 2025 has raised some debates regarding its effect on businesses and consumers that operate online. The new tax policy requiring withholding tax on cash on delivery (COD) will help simplify the tax collection procedure in Pakistan, but it has various impacts on the e-commerce industry. This blog discusses the impact of cash on delivery on e-commerce business in Pakistan and what businesses should know to adjust to this change.

Cash on Delivery Tax

The cash on delivery tax falls under the tax reforms of Pakistan introduced through the Finance Act 2025. This tax requires a 2% withholding tax on any CODs made through courier services. The courier companies collect the tax and serve as tax collectors on behalf of the Federal Board of Revenue (FBR). This step is meant to enhance compliance with taxes and generally simplify the process of collecting taxes since a large number of transactions are being carried out through COD in Pakistan. The tax is imposed in those transactions where customers make the decision to pay in cash when they receive their orders. Although this approach has proven to be more convenient in Pakistan because it is more trustworthy to consumers, the new tax will definitely alter the way e-commerce businesses are operated.

Effects of Cash on Delivery Tax on E-commerce

The Pakistan e-commerce sector has been facing high costs of doing business with the implementation of new taxes on courier services under the Finance Act 2025. The major impacts of cash on delivery tax on e-commerce in Pakistan are mentioned below:

Increase in Operational Costs for Online Sellers

The e-commerce businesses will incur an added fee in every COD transaction with cash on delivery tax. The 2% withholding tax may seem a small amount, but for small and medium-sized businesses (SMBs) it can have a huge effect as these businesses run on tight profit margins. The COD tax will also adversely affect the profitability of businesses that have a high dependence on COD transactions. In addition, it can put businesses in a situation where they have no choice but to either incur these additional expenses or transfer them to the consumer. As a result, consumers will face higher prices. Consequently, the customer’s purchasing behavior may change, particularly when the pricing is adjusted to cover the new tax.

Promoting Digital Payment Methods

The COD tax will raise the cost of COD transactions, but there is a bigger picture: the tax will encourage people to use digital payment methods. The introduction of a tax on cash transactions is a way for the government to reduce the use of cash as a form of payment and encourage transactions to a more secure and traceable electronic payment. This step will help e-commerce companies in the long run. Online transactions are more transparent, manageable, and safer than cash payments. With the shift to digital platforms by businesses and consumers, it is expected that the general efficiency of transactions in the e-commerce industry will improve. In the context of businesses, the opportunity to receive digital payments also creates the prospect of wider reach because digital payments are gaining popularity in Pakistan. This change might mean fewer operational risks related to cash handling as the government advocates for a cashless economy.

Requirements and Compliance Documentation

With the introduction of cash on delivery tax, e-commerce firms will have to ensure that they are adhering to the tax laws enforced by the FBR. The courier companies are expected to calculate the tax at the time of delivery and pay it to the FBR, but this can only be done for registered sellers. This implies that businesses should be duly registered by the FBR in respect of sales tax and income tax. The new regulation also introduces a new emphasis on the significance of proper documentation. Businesses will be required to keep accurate records of COD transactions, tax withholdings, and sales tax filings. Failing compliance will result in facing penalties and legal charges. Therefore, it is mandatory that e-commerce companies remain on top of their taxes and prevent any problems with the FBR.

Impact of Tax on Cash on Delivery on Consumer Behaviour

Cash on delivery tax directly impacts consumer behavior. When the increased tax load will be transferred to consumers through higher prices, customers will no longer be interested in using COD as a payment method. Although the goal of the FBR is to minimize cash transactions, many consumers still use COD due to the lack of trust in online digital payment options. Thus, companies have to respond by providing customers with reasons to switch to online payments or find other ways to pay (e.g, mobile wallets, use debit/credit cards, etc.) to cover the cost of tax.

Impact on Courier Companies

The new tax law will directly affect the courier companies. Since they will be agents who collect taxes on behalf of the FBR, they will have to deduct the 2% withholding tax on the amount they collect in the COD orders and pay it to the FBR. This new burden can also cause some challenges with operations, such as more transportable tracking and reporting systems. In addition, there is a possibility that courier companies decide to transfer the expenses of adopting new systems to e-commerce enterprises by increasing delivery charges. This would add more sales tax on COD.

Let Sidekick Assist Your E-commerce Business

Dealing with the complexities of cash on delivery tax can be overwhelming for e-commerce businesses, particularly for the SMBs which do not have exclusive department and staff dedicated for tax and legal issues. This is where Sidekick can assist. Being one of the biggest tax and finance consultancy firms, Sidekick provided specific solutions to enable online companies to abide by the new tax law and streamline their finances. For instance, Sidekick can assist businesses in their registration process with the FBR to pay sales tax and income tax and sure they comply with all legal obligations. Furthermore, Sidekick offers assistance with tax filing and all the necessary documentation to prevent any penalties or complications with the FBR. Moreover, Sidekick also helps businesses in navigating the financial repercussions of the cash on delivery tax by advising the means to adapt business models to reduce taxes and increase profitability. Sidekick’s years of experience help businesses stay within the new tax regulations and find more ways to survive in the constantly changing e-commerce environment.

Conclusion

In short, the cash on delivery tax is another major tax change in the e-commerce of Pakistan. Although this might raise the cost to businesses and consumers in the short term, the long-term effect may be beneficial since it would encourage digital payments and help modernise the tax collection system in Pakistan.