By most indicators, Pakistan’s e-commerce market should be booming. The number of digital platforms has grown. Courier and payment infrastructures have scaled up. Consumers, especially in urban centres, are shopping online more frequently than ever. Yet beneath this momentum lies an uncomfortable truth. The sector remains burdened not by a lack of demand but by the absence of fair regulation and consistent enforcement.
For local sellers and formal online platforms, the cost of staying compliant is rising at an unsustainable pace. From platform commissions, warehousing costs, and digital advertising to last-mile delivery, bank charges, and employee salaries, the overheads continue to pile up. Furthermore, recent tax reforms have added even more complexity. Local e-commerce platforms are now required to collect and remit a 2% sales tax on every transaction. Courier companies must also withhold income tax on cash-on-delivery orders. These measures aim to formalise the digital economy. In practice, they place a disproportionate burden on businesses that are already trying to follow the rules.
What makes the situation more frustrating is that these rules do not apply equally to all parties. Foreign platforms, such as Temu, have been able to enter the Pakistani market without any real accountability. Temu, which entered the Pakistani market late last year and spent considerable amounts on digital advertising, began gaining popularity for offering affordable products. But those low prices come at a cost, and local businesses are paying that cost.
Industry insiders in the logistics and import sectors have repeatedly raised concerns about how Temu is operating. According to these sources, the platform routinely under-declares the value of goods being shipped to Pakistan. High-value orders are broken down into multiple small parcels, each of which is kept below the taxable threshold. Products that should attract duties are mislabelled or falsely priced, which allows them to bypass customs scrutiny. This type of shipment manipulation is not only unfair but also illegal. Yet enforcement remains either weak or altogether absent.
Customs authorities have been slow to respond, despite the mounting evidence. Local sellers are frequently audited or penalised for minor discrepancies. In contrast, there has been no known investigation into Temu’s import practices. This failure to act has created a two-tiered system. On one side are domestic businesses burdened by rising operational and regulatory costs. On the other hand, foreign players like Temu enjoy unchecked access to the market while avoiding obligations that local companies must fulfil.
The consequences go beyond just price wars. Local entrepreneurs who have spent years building reliable e-commerce brands now find themselves competing with a platform that can sell goods at a loss. Brick-and-mortar retailers are also beginning to feel the pressure. Consumers are shifting their spending toward platforms that do not contribute to the local tax base or follow legal requirements. In a country where formal retail remains fragile, this trend poses a threat not only to individual businesses but also to entire supply chains and employment networks.
Temu’s pricing model is not new, and its tactics have been seen in several parts of the world. But other governments have responded more decisively. Vietnam blocked the app earlier this year for failing to register and comply with tax laws, as did Indonesia and Uzbekistan. Furthermore, in the United States, customs officials and federal lawmakers have flagged Temu as a potential channel for smuggling illicit goods, including counterfeit items and, in some cases, illegal substances, due to its use of unmonitored, fragmented shipments and falsified declarations.
In Pakistan, the response has been far more muted. Policymakers have yet to acknowledge the scale of the threat that platforms like Temu pose. The platform continues to advertise aggressively, run major sales campaigns, and ship high-value items like car accessories and lab-grown diamonds, some of which are priced above PKR 100,000. There is no indication that any of this is being monitored or taxed appropriately.
The introduction of a 5% advance tax on foreign e-commerce transactions was intended to bring some balance. However, instead of levelling the playing field, it revealed just how unchecked some platforms remain. Following the tax’s implementation, Temu sharply raised its prices. In many cases, the increases were far beyond what a 5% tax would justify. Consumers were caught off guard. There was no clear explanation from Temu, and many believe the platform used the policy change as an excuse to adjust its margins.
This lack of transparency has only increased mistrust. Local businesses that are committed to compliance are left wondering what incentive there is to stay within the system when doing so leads to unfair competition, higher costs, and shrinking profits. If Pakistan wants its e-commerce sector to grow sustainably and inclusively, then enforcement must align with policy. Customs authorities must be equipped to address violations effectively. Foreign platforms should be required to meet the same obligations as local sellers. Without this kind of enforcement, the market will continue to reward non-compliance, and those trying to build legitimate businesses will continue to suffer.
Consumers may enjoy low prices in the short term. But the long-term cost of allowing unchecked and unregulated platforms to dominate the market is already becoming clear. Pakistan cannot afford to look the other way.
