Madiha Yaqoob
The International Monetary Fund (IMF) has suggested that online digital platforms engaging in transactions with local consumers in Pakistan should register for sales tax, according to sources familiar with the matter.
IMF has proposed that online platforms, including e-commerce sites like Daraz, Homeshopping, Zameen.com, PakWheels, as well as tech giants like Google and Facebook, which play a significant role in transactions with consumers, should be obligated to register for value-added tax (VAT).
Furthermore, the IMF suggests that these platforms should be responsible for collecting and remitting taxes for sales made through their platforms, involving digital products/services and/or low-value goods (LVGs) from non-resident vendors to domestic consumers.
According to the IMF’s recommendations, these platforms might be termed as intermediaries in certain countries. Given the diverse range of platforms and intermediaries in the online sector, careful consideration is needed to determine which non-resident digital platforms are considered suppliers and therefore required to register and collect VAT on sales.
The IMF’s description of non-resident digital platforms that are deemed suppliers and required to register and collect VAT includes platforms (intermediaries) that control or define essential aspects of transactions between third-party vendors and buyers. For instance, they may provide listing services for service sales and set payment and delivery terms.
If such a controlling entity doesn’t exist, a digital platform would encompass a person directly involved, or through arrangements with third parties, in collecting payments for sales and transmitting them to third-party vendors. However, platforms that merely allow vendors to list their services for sale or function solely as payment processors would not be considered digital platforms under this definition.
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The IMF recommends that VAT-registered businesses should continue to self-assess and remit VAT on purchases of digital products/services and/or LVGs from non-resident vendors and digital platform operators. However, in some jurisdictions, no such obligation exists if the purchase is solely for business purposes.
Government departments and agents, being typically registered for VAT, would treat their purchases as business-to-business transactions and would likewise be required to self-assess and remit VAT on relevant purchases from non-resident vendors and digital platform operators.
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To safeguard the integrity of the proposed simplified VAT framework, the IMF suggests imposing penalties on those providing false VAT registration numbers to non-resident vendors or digital platform operators in an attempt to evade taxes on personal consumption purchases.
In cases where a VAT-registered business provides its VAT number but is still charged VAT, it should be able to request a refund from the vendor or platform operator. However, any VAT paid by the registered business in such situations would not be recoverable through input tax claims or tax error filings.
