ADB proposes 5% GST on digital transactions to boost Pakistan’s e-commerce and investment climate
The Asian Development Bank (ADB) has recommended that Pakistan implement a uniform 5% general sales tax (GST) on all digital transactions to promote e-commerce adoption, curb cash-driven inefficiencies, and advance formal economic documentation.
In its latest report on Pakistan’s
Digital Ecosystem, the ADB warned that inconsistent and
excessive taxation on digital infrastructure—across both federal and provincial
levels—is deterring foreign investment and stalling the growth of digital
services.
“Pakistan imposes some of the highest digital taxes globally and regionally.
These fragmented and unpredictable policies are a major barrier to digital
expansion,” the report stated.
The report also noted that high
service costs are widening the digital divide,
disproportionately affecting women and
marginalized communities, who already face social and cultural
barriers to internet access.
Decline in Investment and Urgent Need for Reform
The ADB highlighted a downward trend in telecom sector revenues and a decline in foreign direct investment, citing Pakistan’s
difficult operating environment. It called on the government to re-engage with investors and industry leaders,
and to offer targeted incentives
to stimulate growth.
Among its key policy
recommendations, the ADB urged:
·
A 10-year reduction of corporate income tax
and cost of doing business
by 10% for SMEs that register and adopt digital platforms.
·
Simplified taxation and foreign
exchange rules for ICT exporters.
·
Income tax capped at 15% for
employees of ICT export firms.
·
Tax credits for women-led digital businesses.
·
A single-window regulatory
system to streamline digital business processes.
·
Low-interest loans for digital
startups and SMEs.
·
A State Bank of Pakistan
mandate requiring commercial banks to allocate at least 15% of their loan
portfolios to SMEs, with at least half going to digital and ICT-based
businesses.
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Rationalizing Taxation and Infrastructure Challenges
Pakistan’s broadband penetration
stands at 56.5%, with
over 137 million subscriptions.
However, the ADB pointed out that all provinces charge a regressive 19.5% sales tax on
internet services—the highest tax rate among comparable service sectors.
The report identified key
challenges holding back digital infrastructure growth:
·
High capital investment
requirements
·
Regulatory roadblocks
·
Cumbersome and costly Right of Way (RoW) procedures
·
Shrinking operator revenues
due to hyper-competitive pricing
To address this, the ADB recommended:
·
A uniform, predictable RoW fee structure
nationwide, with long-term rate stability
·
Expanded investment in early-stage digital infrastructure projects
·
Incentives for local smartphone manufacturing,
including a 3%
R&D allowance on exports
·
Greater access to low-cost smartphones, especially for
women and underserved populations
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Enabling Public–Private Partnerships
The ADB also stressed the need for a comprehensive legal and regulatory
framework to support public–private partnerships (PPPs) in digital
infrastructure development. It called on the government to work with both local
and global partners to design tailored PPP models that expand internet access
and device ownership across the population.
In conclusion, the ADB emphasized that a simplified, investment-friendly tax
regime, coupled with targeted incentives and a stronger digital foundation, is
critical to unlocking Pakistan’s digital potential and ensuring inclusive
economic growth.
Source: Dawn