In July 2025, Pakistani Government heavily Tax Temu, the Chinese e-commerce giant that gained popularity for its budget-friendly products. Consumers were stunned by a dramatic price surge as it skyrocketed by up to 300%, transforming affordable goods into prohibitively expensive items almost overnight.
This abrupt change has sparked widespread debate, with consumers pointing fingers at new government taxes, Temu’s business practices, and broader geopolitical pressures. In this article, we will find out the reason why Pakistani has made a blunder to Tax Temu
Pakistani Government Reverses 5% Digital Tax
The primary catalyst for Temu’s price surge was the Pakistani government’s introduction of Digital Presence Proceeds Tax Act in the 2025-26 federal budget.
This policy imposed a 5% tax on foreign e-commerce platforms, such as Temu and AliExpress, that sold directly to Pakistani consumers without a physical presence in the country. However, after heavy criticism and low sales due to Temu’s exorbitant 300% price hikes, the Pakistani government reversed the 5% digital tax
Dont Tax Temu ! Have prices dropped again in Pakistan ?
Despite the reversal of the 5% digital tax, Temu’s prices remain high as they are now subject to an 18% general sales tax (GST). This aligns them with the tax obligations of local businesses, which also face income taxes of up to 40%.
The government’s rationale was to level the playing field, as local producers bore heavy tax burdens while foreign platforms previously operated tax-free, creating an uneven competitive landscape.
Key Reasons for the High Tariffs:
- IMF Pressure: The IMF demanded Pakistan widen its tax net, and instead of cracking down on local tax-evading businesses, the government targeted foreign e-commerce platforms.
- Protectionism for Local Retailers: Small shop owners and traders (who largely operate in cash) protested against Temu for “hurting their business”—despite many of them not paying taxes.
- Revenue Shortfall: The government saw Temu’s massive sales in Pakistan as an easy target to impose customs duties and sales taxes.
Temu’s Billion-Rupee Profits and Pakistan’s IMF Dependency
Temu, owned by PDD Holdings, captured a significant market share in Pakistan and its meteoric rise was due to:
- Ultra-low prices (often cheaper than local markets)
- Aggressive digital marketing
- Easy payment options
- Wider product selection than most Pakistani retail stores
This success was partly due to its exploitation of the De Minimis exemption, a customs clause that allowed low-value imports to bypass duties, giving Temu a cost advantage over local retailers. However, this also meant Temu contributed little to Pakistan’s tax base, a critical issue for a country heavily reliant on IMF loans.
Temu’s Contribution to Pakistan:
- Over 5 million Pakistani users in less than a year
- Job creation (resellers, delivery networks, customer service roles)
Yet, instead of embracing this economic boost, the government slapped heavy tariffs, making Temu unaffordable for most Pakistanis.
IMF’s Pressure on Chinese Businesses
The new e-commerce taxes align with IMF recommendations. However, this move backfired. Instead of increasing revenue, it pushed consumers back to informal markets. IMF has pushed Pakistan to broaden its tax base, as only 1% of Pakistanis file personal income tax returns, and sectors like retail and agriculture contribute minimally to tax revenue.
However, it is important to understand that IMF influence on Pakistan extends beyond its tax policy. IMF has cautioned that its loans should not be used to repay Chinese debt, creating tension between Pakistan’s obligations to the IMF and its strategic partnership with China.
Why Is the IMF Targeting Chinese E-Commerce?
- US Influence: The IMF is heavily influenced by US policies, and the US sees China’s economic expansion in Pakistan as a threat.
- Debt Control: Pakistan owes $30 billion to China (CPEC loans)
Why Isn’t the Chinese Government Intervening?
Despite these challenges, the Chinese government has not intervened to protect Temu’s operations in Pakistan.
- US & Europe Market: China sees Pakistan’s market as secondary compared to larger markets like the U.S. and Europe
- Trade War escalation: China is cautious about escalating tensions with U.S., especially amid global trade wars, due to U.S. tariffs on Chinese goods rising to 145% in 2025.
Intervening directly could risk diplomatic backlash or further scrutiny of Belt & Road Initiatives worldwide.
Pakistan’s Double Standards: Taxing E-Commerce While Ignoring Cash-Based Tax Evasion
Pakistan’s biggest tax problem is its undocumented cash economy:
- 90% of retailers don’t pay taxes (despite IMF demands).
- Local markets operate on cash with no receipts, avoiding taxation.
- Government lacks enforcement due to trader lobby pressure.
Yet, instead of fixing this, the government penalizes digital platforms that actually leave a taxable trail.
Hypocrisy Exposed:
- Temu’s transactions were traceable—easier to tax than cash sales.
- Local traders evade taxes but protest against “foreign competition.”
- IMF’s demand for tax reforms is being misapplied—targeting the wrong sector.
This double standard is pushing Pakistan further into economic crisis.
How Temu’s Credit System Could Have Saved Pakistan’s CashlessFuture
Temu wasn’t just a shopping app—it was a financial revolution for Pakistan as its reliance on a cash-based economy exacerbates its economic woes :
✅ Boosted Cashless Payments (bank transfers, digital wallets) formalized transactions
✅Helped Small Resellers (dropshipping, local resale businesses)
✅ Created Jobs (delivery, customer support, logistics)
✅Improved Product Quality (better than local low-quality goods) fostering competition
Most of Pakistan’s population is unskilled and uneducated around 50%- 60%
E-commerce sector’s growth, which could have empowered youth and small entrepreneurs, is now at risk of stagnation.
Solutions: How China & Pakistan Can Turn This Into an Opportunity
1. Chinese Government Must Intervene
- Diplomatic Push: China should pressure Pakistan to reverse unfair tariffs on platforms like Temu. This would counter IMF and U.S. pressure while preserving Chinese economic influence
2. Pakistan Should Export Temu Products (Value Addition)
- Instead of banning, Pakistan should rebrand, value add & export Temu goods (like Europe does with Chinese products).
- Example: Buy bulk electronics / gadgets from Temu, assemble/repackage in Pakistan, and export to Africa/Middle East.
3. China Should Use Pakistan as a Trade Hub (Bypass Tariffs)
- Set up Production hubs in Pakistan—label products as “Made in Pakistan” to avoid duties. This would align with CPEC’s goals, create jobs, and integrate Pakistan into global supply chains.
- Joint ventures with Pakistani sellers to avoid import taxes.
4. Include More Pakistani Sellers on Temu
- Let Pakistani SMEs sell on Temu—boosting exports.
- Teach local businesses e-commerce (Alibaba did this in China)
Conclusion: Pakistan’s Short-Sighted Policies Tax Temu Will Backfire
Temu’s overnight price surge in Pakistan reflects a complex interplay of government taxes, IMF pressures, and geopolitical tensions. Although the Digital Presence Proceeds Tax Act is now abolished a high level of GST still applicable will not make the situation better as its implementation would do the following.
- Protect tax evaders business (forced to digitise due to competition)
- Pushing people back to cash (more tax evasion)
- Encourage smuggled products
- Killing small online businesses (resellers losing income)
- Sabotaging the automatic inclusion of people in tax net
- Missing the digital revolution (while neighbors like India embrace it)
The IMF’s pressure and US influence are hurting Pakistan more than helping. China must step in to cut the west pressure on its trades worldwide and indirectly send a message through Pakistan.
Solution by Pakistan Government?
- Reverse Temu like platform tariffs – zero tax
- Tax the cash economy
- Partner with China for e-commerce exports
Without these steps, Pakistan’s economy will remain trapped in the past while the world moves forward. 🚀