Pakistan: Digital gaps

Pakistan Struggling to narrow down digital gap

We live in a world where interactions between the state and citizens, and economic performance, are being redefined by rapid technological developments. In fact, progress in this area in the last two decades has shown how digital technology holds the key to inclusive growth, economic productivity, better governance and global competitiveness.

But Pakistan has been unable to fully unleash its digital potential in spite of several government initiatives in the past decade, a large, young, tech-savvy population and growing internet access. This is mainly due to patchy efforts in this direction thanks to the absence of a comprehensive policy framework. With only 17.7pc of people making digital payments in Pakistan — where 59m payment cards, accounting for only 24pc of the population, have been issued, compared to 71pc in India — the potential for adopting digital technology here is being wasted. Consider that our e-commerce spending at $10bn in 2023 was far below Bangladesh’s $16bn due to barriers such as limited POS infrastructure and low digital literacy.

It is against this background that the Asian Development Bank’s new study, Pakistan’s Digital Ecosystem: A Diagnostic Report, suggests an array of fiscal and bank financing incentives, as well as simplified tax and foreign exchange regimes, to encourage digital transactions, support tech start-ups, promote e-commerce and attract global ICT investment and venture capital into the country. The proposals include decreasing GST on digital dealings to 5pc to accelerate digital payments and hence reduce cash-based inefficiencies in the economy.

The study also proposes cutting corporate income tax and the cost of doing business for SMEs by 10pc for the next decade, conditional on digital registration and transactions. A ‘Data Exchange Layer’ and full adoption of the ‘Pakistan Digital Stack’ are advised to digitise governance and regulation, as well as the allocation of at least 15pc of bank loan portfolios for SMEs, with half earmarked for digital and ICT businesses, in order to provide low-interest loans and guarantees to tech firms. It also proposes capping payroll taxation at 15pc of income for ICT-exporting firms and offering tax credits for hiring local talent and a capital gains tax exemption on investments in tech start-ups.

Indeed, the proposals do not align with the main goals of fiscal consolidation of the $7bn IMF programme. The FBR will also resist such steps as they are likely to cause a big dent in its revenues without alternative tax mobilisation sources to make up for potential losses. Nevertheless, it should be stressed that Pakistan and its economy stand at a point where they need to shift to digital technology and move out of recurring crises. The challenges notwithstanding, digital technology affords Pakistan a unique opportunity to transform itself into a dynamic digital economy to boost productivity and competitiveness, improve governance and empower its citizens.

Reference Link:- https://www.dawn.com/news/1924710

Prof. Engr. Zamir Ahmed Awan Founder & Chair, Global Silk Route Research Alliance

Zamir Ahmed Awan is the founder and Chair of the Global Silk Route Research Alliance, a think tank in Islamabad. He studied engineering at Shanghai University in the 1980s, and years later he went back to China as Pakistan's science counsellor in Beijing, from 2010 until 2016, working on science and higher education cooperation between the two countries.…

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