Pakistan’s Tariffs on Chinese E-Commerce
As Pakistani consumers now open their favorite foreign shopping apps, such as Temu and AliExpress, their excitement crashes down. They are greeted with the harsh reality of looking at Temu prices increase, AliExpress price increases, and customs duties, which even rival the actual prices of the products they desire. This overwhelming experience follows Pakistan’s Finance Bill 2025-26, presented in June, which introduced a seismic shift in the country’s trade policy by transforming the digital and e-commerce ecosystem.
Effective July 1, the new taxation steps involve a 5% Digital Presence Proceeds Tax, in addition to the 18% standard sales tax, on foreign online platforms. They are also directed to pay 5% tax on their ad spending on social media platforms. These measures have sent shockwaves through digital marketplaces, specifically the Chinese e-commerce giants, including Temu and AliExpress. Their popularity and instant price surge have sparked a heated debate about the diplomatic and economic ramifications of this decision by the government.
How Temu and AliExpress Became More Expensive in Pakistan
Pakistan’s new tax regime targets even those foreign e-commerce platforms that operate without a physical presence in the country. The 5% digital presence tax applies to platforms like Temu, owned by China’s PDD Holdings, and AliExpress, part of Alibaba’s extensive empire. Combined with a high sales tax, these new impositions have led to a massive Temu prices increase, and AliExpress becoming unaffordable, damaging both platforms that had gained popularity due to their affordability.
For low-income families who make up a significant portion of these platforms’ consumer base in Pakistan, the prices have soared to a level of unaffordability. As inflation increased by 0.2% on a month-to-month basis in June 2025, the purchasing power had already been squeezed. The added tariffs have made Temu and AliExpress less competitive than their pre-July prices.
According to the data provided by FBR for FY2024-25, Pakistanis spent Rs. 6.8 billion collectively on Temu and AliExpress, amounting to 2.1% of the total amount spent on online platforms. It implies that in pure e-commerce specifically, their share is much higher. These platforms are driven by their ability to offer goods at rock-bottom prices imported directly from China. They leveraged the global “de minimis” loophole, allowing low-cost shipments to bypass import duties. While the customs threshold for duty-free imports is quite low, i.e., Rs. 5000 in Pakistan, the new taxes have reduced this cost advantage, compelling the e-commerce platforms to either absorb the costs or pass them on to consumers.
Various users have reported in July that prices on Temu and AliExpress have surged to a high level. By July 7, AliExpress had officially shut down budget shipping to Pakistan after the crackdown by Pakistani authorities on low-cost shipping methods, including AliExpress Standard Shipping and Cainiao. Instead, the platform has opted for offline processing for its shipments to Pakistan. In a similar scenario, Temu has imposed steep price hikes as high as 200 to 300% in some cases. The lack of clarity around the precise duties per product has caused these platforms to raise prices preemptively, far exceeding the combined 23% required tax rate.
Economic Rationale: Protecting Local Industries or Chasing Shadows
The tax on foreign e-commerce platforms has been justified as an attempt to level the playing field for local retailers. The logic is simple: foreign e-commerce marketplaces, by exploiting the low-cost Chinese supply chains and minimal tax cuts, undercut domestic businesses that face high operational costs and tax obligations.
The secretary general of the Chainstore Association of Pakistan has welcomed this move by stating the same reasons. The government of Pakistan aims to achieve its target of $50 billion in tax collection for the fiscal year 2025-26. This is in line with the commitments made to the International Monetary Fund, which has pushed the GoP to increase its tax base. The overall objective is to encourage consumers to buy local products and generate revenue for a self-sufficient economy.
But here’s the catch: Pakistan’s local products are not entirely local. The country’s manufacturing potential is dependent on Chinese input in the form of raw materials, machinery, and components. For instance, in the textile sector, over 60% of its cotton yarn imports come from China, as it is cheaper than domestic yarn.
Similarly, electronic assembly plants, including those run by big companies, source Chinese components for products like mobile phones and appliances. State Bank of Pakistan reported that China remained the largest import source for Pakistan in FY 2023-24. The total imports from China went up by 39.8% on a year-on-year basis, thereby proving the deep integration of Chinese goods in the local supply network.
This dependency complicates the tariff-induced anticipated benefits. By increasing the taxes for foreign vendors, the government may inadvertently escalate prices for local manufacturers who source components through AliExpress and similar platforms for small-scale productions. This ripple effect could mirror the findings of a report published by the United States International Trade Commission, which proclaimed that 2018-19 US tariff impositions led to a $3.4 billion production decrease in downstream industries due to higher input costs.
Moreover, the revenue argument is shaky. While PKR 14.3 trillion tax collection sounds substantial, it is still marginal as compared to the projected deficit of PKR 6.5 trillion for FY 2025-26. Pakistan’s growth model is sensitive to any surge in consumer prices. It is reported that 85.2% of the GDP accounted for private consumption in June 2024.
With inflation reducing real income and household consumption accounting for most of GDP, any cost burden through AliExpress and Temu could mean a potential suppression of non-essential spending, hence restricting economic progress.
Consumer Impact
Temu and AliExpress have been a breath of fresh air for Pakistan’s lower-class and middle-class households. From clothing to mobile accessories and jewellery items to home appliances, the variety and affordability made them comfortable purchase options for the consumers. The cost-effective shipping methods and business model made these Chinese marketplaces a huge success in Pakistan. Therefore, the shift to local alternatives would not be seamless.
New levies and taxes have also been slapped on local e-commerce platforms. They already struggle with variety and logistics. It is hard for consumers to completely rely on the domestic industry due to unreliable delivery and limited product ranges.
The e-commerce sector generated $5.3 billion in revenue in 2023 for Pakistan. By making Temu and AliExpress less affordable via an increase in prices and more inconvenient, the government risks inhibiting the progress of a growing sector. Domestic e-commerce marketplaces that source inventory from the same suppliers as Temu and AliExpress might also increase their prices due to supply chain cost escalations.
By increasing the tariffs a large demographic already suffering from economic distress would be alienated. The government is indirectly pushing consumers towards informal supply networks and smuggled goods.
Geopolitical Impacts
Pakistan’s tariff impositions come at a sensitive moment in its diplomatic relationship with China. China has been a major trading partner and a catalyst for Pakistan’s economic progress through CPEC. China has funneled investment in Pakistan’s energy, infrastructure, and industrial sectors through CPEC since 2015. It has been reported that for the FY 2024-25, China accounted for 49.9% of Pakistan’s total foreign direct investment. Taxing Chinese e-commerce marketplaces could be perceived as a blow to China-Pakistan’s strong relationship, specifically at a time when China is facing its economic challenges, including the heavy drop in profit of Temu’s owner company, PDD Holdings.
Beijing has historically proved to be an ally for Islamabad by countering India and providing Pakistan with support at an international level. The recent tariff impositions and trade tensions can test this strong bond. China has already expressed dissatisfaction with the global tariff hikes. It has officially called out the US in April 2025 for imposing heavy tariffs on China.
While Pakistan’s tariffs are modest as compared to the levies imposed by America on Chinese imports, they can be viewed as part of a global trend of protectionism, which China has vocally opposed. China can now prioritize Europe as its potential export market, for it has fewer barriers. It might as well read the move by Pakistan as a deviation from the commitment to mutual growth and cooperation.
US-China Trade War Connection
Pakistan’s tariff decision cannot be viewed in isolation; it echoes the US-China trade war, which has redirected global e-commerce. Recently, the Trump administration eliminated the de minimis exemption, imposing 145% tariffs on Chinese imports. This was followed by a whopping 65% drop in Chinese e-commerce exports to the US in the first three months of the year, including those from Temu and Shein. The US has justified its tariffs as part of its strategy to counter unfair shipping practices and drug smuggling.
The implications of this trade war are not restricted to the two superpowers: Pakistan finds itself caught in the crosscurrent. With the rise in tariffs by the US, Chinese importers are rapidly redirecting their products to the developing economies. Marketplaces like Temu are leading this trend by dumping the surplus inventory at aggressive prices in these countries, including Pakistan. This has led to tough competition for domestic vendors and exporters, specifically in the textile industry.
The flooding of the market by Chinese products has raised concerns regarding the prosperity of the local industry. Recent tax impositions by Pakistan might be considered a part of its economic strategy to stabilize the domestic industry in the face of the threat posed by China’s redirected exports post-US tariffs.
Yet, amid this economic turmoil, there is hope. Pakistan’s textile industry may stand out in the US market due to economic disparity. The US tariffs on Pakistani imports stand at 29%, significantly lower than those imposed on China and other rival countries. Pakistan can cash in on this opportunity if it acts quickly to capture the space vacated by Chinese goods in the US market.
Within this context, the recent tax impositions by Pakistan on Chinese digital shopping platforms can be viewed as a strategic and diplomatic policy to maintain a balanced position in the US-China trade war. By leveraging the heightened trade tensions between the two major economies, Pakistan can kill two birds with one stone: protecting the domestic industry and boosting exports. At the same time, the policymakers in Islamabad must remain conscious of the delicacy and potential negative impacts of the situation.
Will the Tariffs Deliver?
The evidence suggests that tariffs are a mixed and dangerous gamble. On one hand, they have the potential to generate revenue and support local industry. On the other hand, they risk escalating costs across the supply chains, disrupting the local manufacturing capabilities, given the reliance on Chinese input. Consumers can be drawn towards informal markets, which evade taxes and reduce the overall tax collection. The tariff surge could also lead to inflated prices of non-essential goods, thereby reducing the purchasing potential of consumers.
At the diplomatic level, Pakistan’s relationship with China could be strained at a time when Pakistan needs Beijing for financial cooperation. As of 2023, China emerged as Pakistan’s largest creditor, sharing 22% of the total debt. The possibility of retaliatory tariffs by China cannot be negated either. While the US tariffs provide a playbook, Pakistan lacks the potential to weather long trade disputes. Only time can decide whether Beijing interprets Islamabad’s decision as a domestic fiscal policy or an economic confrontation.
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Laiba Khalid is a university student and emerging content writer with a keen focus on socio-political issues, governance, and policy. With a background in English and an interest in current affairs, she brings a critical and youth-driven perspective to contemporary debates. Laiba is particularly interested in bridging academic insight with real-world challenges. She writes with a commitment to clarity and research-based analysis.