The Asian Development Bank (ADB) has advised the Government to implement a general 5 percent general sales tax (GST) for all digital transactions to promote the national adoption of digital payments and electronic commerce platforms, reduce inefficiencies related to cash and document the economy.
In its latest report on the digital Ecosystem of Pakistan issued yesterday, the ADB warned that high and inconsistent taxes on digital infrastructure in the country represent a serious risk for foreign investment, growth and expansion of digital services.
“Pakistan’s digital infrastructure faces an important challenge of high taxes. Taxes on this sector, both federal and provincial, are some of the highest worldwide and regional, and tax policies tend not to be very consistent,” the report said.
“The cost of the provision of services exacerbates digital division, especially for marginalized women and groups, which face asymmetric costs and cultural barriers to access the Internet.”
The report also adds that the telecommunications sector in Pakistan has “experienced a decrease in foreign income and investment, which reflects a very challenging business environment.”
The Government requires a “renewed approach by the Government to commit to investors and stakeholders of the industry to address their concerns and provide incentives and facilitation to invest and operate in the country.”
In its recommendations, the ABD urged to “rationalize all digital infrastructure taxes, both direct and indirect, making them competitive against a basket of countries and fix the tax rates of the sector for at least 10 years.”
Pakistan currently has 56.5pc of broadband penetration with 137 million subscriptions. Each province takes on a regressive tax for sales of 19.5% in the use of the Internet service that is higher than any other service, he adds.
“High capital investment; regulatory obstacles; the expensive and cumbersome agreements of passage right (row); and the high unpredictable taxes hinder new investments in Pakistan digital infrastructure,” says the report.
Pakistan has the lowest average income in the world per user due to a fierce competition between service providers, according to the report, and adds that the revenues of operators and telecommunications companies have “reduced” in real terms.
It recommends demanding an optimal flat row rate throughout the country by meter, permission granted to telecommunications companies to install and maintain their infrastructure (such as fiber optic cables, mobile towers, etc.), and provide a predictable increase for a longer period.
It also recommends prioritizing investments in initial stages in digital infrastructure projects, promoting local smartphone manufacturing and providing a 3PC research and development allocation on exports of smartphones produced locally.
The ADB advises the Government to create a “solid legal and regulatory framework for the development and implementation of public associations -private (PPP) for digital infrastructure.”
It also requires expanding Internet access and the property of citizens devices, especially women, who work with local and global partners to design custom PPP programs and provide low -cost smartphones or easy to deliver.
