An overview of the regulatory landscape and obstacles surrounding the e-commerce industry in Pakistan

Wednesday 3 May 2023

Sahar Iqbal

Akhund Forbes, Karachi



The e-commerce industry has seen a sharp rise in recent years, largely due to global digitisation of economies with rampant adoption and development of technology. A further boost was provided to the industry by the Covid-19 pandemic as the world resorted to online shopping to acquire even the basic necessities.

In Pakistan, the e-commerce industry has experienced significant growth primarily due to the availability of speedy-internet connectivity and technology gadgets like smartphones on a large scale, making it convenient for people to shop online.[1] According to a report produced by the State Bank of Pakistan, there has been a 76 per cent increase in the registered e-commerce merchants in Pakistan from 1,707 in 2019/20, to 3,003 in 2020/21, in a single financial year.[2] The scale of growth of the e-commerce in a cash-based economy of Pakistan is astounding as majority of the transactions are concluded in cash. The e-commerce industry has the potential to strengthen the economy of Pakistan.

This article will provide an overview on the current regulatory regime surrounding the e-commerce industry in Pakistan, along with the developments introduced to support the industry, with further focus on the obstacles faced by the industry hindering its true potential.

Current regulatory regime surrounding e-commerce industry in Pakistan

The Electronic Transactions Ordinance 2002 (ETO) is one of the core legislations governing the conduct of electronic transactions. It provides legal recognition to electronic transactions and signatures and also includes provisions preventing fraud in the application of electronic signatures and violation of privacy of information.[3]

Digital or electronic payments are essential for the ecommerce industry. They fall under the scope of electronic funds, which is governed by the Payment System & Electronic Funds Transfer Act 2007 (‘PS&EF Act’). The PS&EF Act defines Electronic Funds transfer to mean: ‘any transfer of funds, other than a transaction originated by cheque, or draft, which is initiated through an Electronic Terminal, telephonic instrument, or any other electronic device so as to order, instruct, or authorise to debit an Account’.

Further, the term Electronic Terminal is defined as: ‘Electronic Terminal’ means ‘an electronic device, operated by a consumer, through which a consumer may initiate an Electronic Fund Transfer.’

The relevance of the PS&EFT Act to the e-commerce industry is significant. E-commerce transactions rely heavily on electronic payment systems and funds transfers, and the PS&EFT Act provides a regulatory framework to ensure the safety, security and reliability of these transactions. The licensing of payment system operators, protection of consumer interests and security measures required by the PS&EFT Act are aimed, among others, to build trust and confidence in electronic payment systems, which is essential for the growth of the e-commerce industry.[4] However, the majority of the consumers rely on cash-on-delivery (COD) for concluding transactions and this is why the applicability of the PS&EFT Act is limited.

The Prevention of Electronic Crimes Act 2016 (PECA), is another relevant legislation for the e-commerce industry in Pakistan as it is the primary legislation which provides for the storage and transmission of personal data. It contains provisions pertaining to unauthorised access to personal data and confidentiality of information. Since electronic transactions require the use of a customer’s personal data and information, businesses operating in this sector need to make sure their practices are in compliance with the PECA.[5]

The Consumer Protection legislations are established separately in the provincial and federal territories. However, it adopts a uniform approach in providing safeguarding measures to the consumers against protection, fraud and other types of abuse in business transactions. The government agency in charge of investigating and prosecuting cybercrime in Pakistan, including e-commerce fraud, is the Federal Investigation Agency (FIA) Cyber Crime Wing. Businesses are required to disclose any instances of e-commerce fraud and adhere to best practices for protection since these rules and regulations are enforced by numerous government organisations and individuals. The legislation does not comprehensively provide for the protection of consumers engaging in online transactions but rather focuses mainly on the safety of consumer products being sold in the provinces.

The current regulatory framework does not effectively address the concerns of the e-commerce industry and there remains trust deficit and insecurity amongst the businesses and consumers. A more robust set of regulations need to be developed to provide shelter to e-commerce industry to ensure uninterrupted and smooth progression.

Obstacles faced by e-commerce industry in Pakistan

A number of obstacles need to be addressed to fully utilise the potential of the e-commerce industry in positively shaping the economy.

There is a lack of trust among consumers in relation to online or electronic transactions due to lack of enforcement of cybersecurity and data privacy laws. An effective enforcement mechanism needs to be formulated in the shape of a comprehensive legislation which will govern this crucial area to eliminate online fraud and provide security to the consumer engaging in electronic transactions.

There is also a need for a strong logistics infrastructure to further promote the industry. The logistics cost in Pakistan is high due to poor road infrastructure, absence of systemised packaging and outdated and bureaucratic customs procedures. To lower logistics costs and increase supply chain efficiency, the public and private sectors must invest in upgrading the road network, standardising packaging, and streamlining customs procedures.

Another significant issue is the payment infrastructure. Even if many digital payment options have become more popular, many individuals still choose to pay with COD. The possibility of fraud and non-payment makes it difficult for e-commerce companies to operate. Enhancing security protocols, raising customer knowledge of digital payment options and offering incentives to do so, are all necessary.[6]

There is, therefore, a need of a comprehensive regulatory framework not only targeting the traditional commerce but extending its cover to e-commerce as well.

Role of the E-Commerce Policy in addressing the obstacles surrounding the industry

The government of Pakistan published an E-Commerce Policy (the ‘Policy’) in October 2019 in order to promote and regulate the e-commerce industry.

The Policy's main goal is to achieve the comprehensive growth of the industry and the economy as a whole and effectively tackle the obstacles faced by the e-commerce industry in Pakistan by concentrating on the following areas: job opportunities, interregional connectivity, an improved and effective domestic market to compete both domestically and internationally, women’s economic inclusion through the support of small-scale businesses, and an adequate framework for market competitiveness.

The Policy is concerned with addressing the issues faced by businesses and consumers in the industry and to create a favourable environment for the growth of e-commerce in Pakistan while ensuring transparency, accountability and protection for consumers and businesses. By promoting e-commerce, the Policy also aims to contribute to the country’s economic development and digital transformation.

A major focus of the Policy is to promote the financial inclusion and digitisation through payment infrastructure development. The policy aims to promote financial inclusion and digitisation in Pakistan by discouraging COD transactions through incentives for consumers and merchants. Within three years, the maximum amount for COD transactions will be PKR 10,000 and efforts will be made to convert all COD payments to e-payments by 2029. Measures will be taken to improve banking services for merchant accounts and increase access to international payment gateways. The State Bank of Pakistan (SBP) will ensure effective implementation of regulations to facilitate freelancers and IT exporters, and work on a nation-wide micro payment gateway. The Ministry of Information Technology and Telecommunication (MoITT) will collaborate with the SBP to approach PayPal and other payment gateways for availability in Pakistan.

The policy aims to promote freelancers as a key employment sector by creating a separate association for them in the Commerce Division to address their issues. The small to medium enterprise (SME) policy will be aligned with the opportunities in the e-commerce sector, and an e-commerce business facilitation hub will be established. The Pak e-SME programme will identify, train, enable and connect 50,000 e-SMEs in remote areas to online marketplaces. Export-enhancing e-commerce training and talent development among SMEs will be augmented and they will be connected with global online platforms through digital marketing. Collaboration will be ensured with relevant organisations for access to finance through venture capital and seed funding, with a focus on women entrepreneurs. Initiatives will be launched to encourage digital marketing, capacity building/training and e-commerce enterprises.

The Policy proposes amendments to the current federal and provincial consumer protection legislations with the addition of the definition of ‘online transactions’, and online good suppliers/sellers and service providers, establishing a mechanism to receive complaints relating to online transactions. Furthermore, the Policy provides for the establishment of alternate dispute resolution centres for the expeditious settlement of disputes, and also calls for the development of e-courts for quick processing of cases and efficient disposals.

The Policy calls for a development of a less burdensome taxation structure for online businesses with reduced sale taxes and a harmonised system of collection to avoid double taxation. It also proposes a simplified procedure for the return of sales tax for damaged and returned goods through the introduction of one page sales tax form.

The Policy also calls for the promulgation of the Data Protection Bill which will be an independent comprehensive legislation providing protection to the consumers and business from misuse of personal data and cyber threats.

The Sustainable Development Goal (SDG)-8 (Decent work and economic growth), SDG-9 (Industry, innovation, and infrastructure), and SDG-12 (Responsible and sustainable consumption and production patterns) targets for Pakistan were taken into consideration when creating the Policy. It makes the business’s digital environment more affordable. The majority of the issues faced by the e-commerce industry are addressed by the Policy, including youth empowerment to increase market competition, financial inclusion and digital modes of transaction, regulation system through the establishment of a National Single Window system (National E-commerce Council) to increase the efficiency of exports, registration of e-commerce businesses to effectively check and balance imports, provision of consumer protection, improvement of taxation structures to generate revenue and effective access.[7]

Promulgation of the Policy was a much needed step to promote the e-commerce industry. However, it must be effectively implemented to free the industry from obstacles hindering its growth.


The e-commerce industry in Pakistan is experiencing significant growth, with an increasing number of businesses and consumers taking advantage of the convenience and accessibility of online shopping. However, the regulatory landscape in the country must clear obstacles to the industry's continued expansion, including issues with payment processing, taxation, consumer protection and cybersecurity. The Policy is a major development in addressing some of the issues faced by the e-commerce industry as it aims to tackle these issues with a comprehensive approach covering areas which slow down the pace of growth and development. The effective implementation of the Policy will require collaboration between government regulators, e-commerce businesses and other stakeholders, as well as a commitment to developing and enforcing regulations which support the growth of a safe, secure and reliable e-commerce industry in Pakistan. By working together to overcome these obstacles, Pakistan can unlock the full potential of its e-commerce industry, driving economic growth and creating new opportunities for businesses