The Asian Development Bank’s (ADB) latest report suggests that Pakistan implement a five percent general sales tax (GST) on all digital transactions to encourage a shift toward digital payments.

 

The report published on Monday suggests that this will decrease inefficiencies in cash-based transactions and will help Islamabad for documentation purposes. This could help the Federal Board of Revenue (FBR) increase compliance rates with existing tax laws, allowing for a potential rise in government revenues.

 

The regional lender’s report in consideration pertains to Pakistan’s Digital Ecosystem, wherein the creditor warned that high taxes on domestic digital infrastructure could hamper economic growth, slow down the expansion of digital services, and reduce the influx of foreign investments.

 

The report suggests that the ADB should “rationalise all digital infrastructure taxes, both direct and indirect, making them competitive against a basket of countries, and fix sector tax rates for at least 10 years”. Rationalising digital infrastructure taxes will likely serve to increase investment inflows, lower service costs, and encourage network expansion, which could boost digital access, reduce the digital divide, and promote economic development through wider digital adoption.

 

As per the report, the domestic digital infrastructure bears a large burden in the shape of “high taxation”. The report suggests that taxes on this sector in Pakistan are among some of the highest in the world. Moreover, the report has outlined how “the tax policies tend not to be very consistent”.

 

Highlighting the inconsistency in policies, the report has underlined how women and other disadvantaged groups face “asymmetric cost and cultural barriers to accessing the internet.” If Pakistan lowers the barriers to entry for these marginalised groups, the use of digital financial services is likely to increase significantly.

 

One of the primary barriers to digital transactions is the low rate of broadband subscriptions, which indicates that only 56.5 percent of Pakistanis have access to the internet. This figure could be vastly improved if provinces reduce the extortionate 19.5 percent sales tax which they charge on internet service usage.

 

The report has also prescribed Pakistan with certain measures to boost digital transactions. These measures include collaborating with international entities to design public–private partnerships (PPPs), offering affordable smartphones and bumping up device ownership for Pakistanis, especially disadvantaged groups such as women.