The Finance Act 2025 introduces a significant compliance requirement for Pakistan’s rapidly growing digital commerce sector through the insertion of Section 165C into the Income Tax Ordinance, 2001. This new section mandates specific reporting obligations for online marketplaces, payment intermediaries, and courier services engaged in the sale and delivery of digitally ordered goods and services.
This blog post provides an expert yet accessible analysis of Section 165C, outlining its legal obligations, scope, compliance mechanics, and implications for stakeholders. It also offers practical insights, FAQs, and SEO-optimized guidance for Pakistani tax consultants, business owners, and digital service providers.
Legislative Background and Objective
The addition of Section 165C aims to strengthen tax enforcement and transparency in Pakistan’s growing digital and e-commerce ecosystem. It complements existing provisions of Section 165 but introduces tailored compliance standards for digital platforms and logistics/payment facilitators.
Scope of Section 165C
Section 165C applies to the following entities:
1. Payment Intermediaries and Courier Services
Entities responsible for deducting tax under section 153(2A) must submit a quarterly withholding statement to the Commissioner containing:
Seller Identification: Name, NTN or CNIC, and address
Transaction Details: Date, invoice number, and transaction value
Tax Deducted: Amount withheld from payments to the seller
Additional Information: As may be prescribed by FBR
Example: A courier company facilitating Cash-on-Delivery (COD) sales must withhold tax on behalf of the seller and file quarterly withholding statements with complete seller and transaction data.
2. Online Marketplaces
Every online marketplace operating in Pakistan must file monthly statements to the FBR disclosing:
Name, address, and tax registration numbers (Sales Tax + Income Tax) of each vendor
Monthly transaction details and aggregated turnover
Amounts deposited into vendors’ accounts
Example: A leading online platform like Daraz must report vendor-wise monthly turnover and payment details to FBR.
Due Dates and Filing Mechanism
1. Quarterly Withholding Statements
Filed by courier services and payment intermediaries.
Due within the time specified under Section 165 (excluding sub-sections 1, 1A, and 6).
2. Monthly Marketplaces Statements
Filed by online marketplaces.
To be submitted within the prescribed period of the following month.
Interaction with Section 165 of the Ordinance
While Section 165C carves out a special regime, most procedural provisions of Section 165 still apply mutatis mutandis, including:
Filing due dates
Revisions
Extensions
Powers of the Commissioner
Reconciliation with the annual income tax return
Case Study: A fintech payment aggregator must file quarterly withholding statements under Section 165C and align those records with the annual statement under Section 165.
Legal Implications of Non-Compliance
Failure to comply with Section 165C may expose entities to the following consequences:
Penalties under Sections 182 and 205 of the Ordinance
Audit and scrutiny by the FBR
Disallowance of expenses related to non-deducted taxes
Risk of being labeled as non-compliant under Active Taxpayer List (ATL) provisions
Practical Recommendations for Stakeholders
For Online Marketplaces
Automate vendor transaction logs
Integrate tax information into seller dashboards
Establish monthly compliance protocols
For Courier Services
Digitize COD and seller payment processes
Coordinate with vendors on tax status (NTN/CNIC collection)
For Payment Intermediaries
Enable tax deduction at source in payment systems
Maintain records of withholding per transaction
Section 165C reflects FBR’s commitment to enhancing tax transparency and accountability in Pakistan’s digital economy. Businesses must treat these requirements seriously and invest in systems and training to ensure ongoing compliance.
Legal and tax professionals should proactively assist clients in navigating these new obligations, thereby reducing their exposure to audit risks and penalties.
Frequently Asked Questions (FAQs)
What is Section 165C of the Income Tax Ordinance, 2001? Section 165C mandates digital platforms and related service providers to file periodic tax statements with the FBR.
Who is required to file under Section 165C? Online marketplaces, payment intermediaries, and courier services involved in digitally ordered goods and services.
What are the filing frequencies?
Quarterly for payment intermediaries and courier services
Monthly for online marketplaces
What must a courier service report? Seller details, transaction data, and tax deducted on each sale.
What is meant by a payment intermediary? Any entity facilitating digital payments such as fintechs, mobile wallets, or online payment processors.
What information must online marketplaces provide? Vendor identification, turnover, tax registration, and payment records.
Is this requirement new for 2025? Yes. It was introduced via the Finance Act 2025.
Does Section 165C override Section 165? It supplements Section 165 while adopting many of its procedural aspects.
What is the penalty for non-compliance? Penalties may be levied under Sections 182 and 205.
Can FBR call for these statements at any time? Yes, the Commissioner may demand the statements even before the due date.
Do non-resident marketplaces fall under this law? If operating in Pakistan, they are likely subject to this section.
How can businesses prepare for compliance? By maintaining robust digital records and automating statement generation.
Do I need a tax consultant to file these? It’s highly advisable due to the complexity and legal implications.
Can I revise a submitted statement? Yes, in accordance with procedures from Section 165.
Is the tax deducted final or adjustable? Subject to classification under Section 153(2A) – typically adjustable.
What is aggregated turnover? Total monthly sales by a vendor on a marketplace.
What systems should online marketplaces adopt? Integrated ERP or seller dashboards with tax compliance modules.
Is a bank considered a payment intermediary? Yes, if involved in processing payments for digital sales.
Will non-filing affect ATL status? Yes. Consistent non-compliance may result in removal from ATL.
Where can I find the prescribed formats? FBR will issue prescribed forms and formats under rules.
