ADB recommends 5pc GST on digital transactions

ISLAMABAD: The Asian Development Bank (ADB) has recommended the government to implement a uniform 5 per cent general sales tax (GST) on all digital transactions to promote digital payments and e-commerce platforms across the country, reduce cash-related inefficiencies and document the economy.

In its recent report titled ‘Pakistan’s Digital Ecosystem’, released on Tuesday, the ADB warned that heavy and unsustainable taxes on digital infrastructure in the country pose a serious threat to foreign investment, growth and the spread of digital services.

The report states, “Pakistan’s digital infrastructure faces a major challenge from high taxation. Federal and provincial taxes on this sector are among the highest in the world and in the region, and tax policies are generally inconsistent.”

Also read: Bitcoin climbs to record $123,000 as investors eye US policy boost

“The cost of providing the service further exacerbates the digital divide, particularly for women and marginalized groups, who face disproportionate financial and cultural barriers to Internet access,” the report said.

According to the report, Pakistan’s telecom sector is “suffering from declining revenue and foreign investment, reflecting a challenging business environment.”

The report emphasised that the government should focus on re-engagement with investors and industry stakeholders to address their concerns and provide incentives and facilitation for investment and operations in the country.

In its recommendations, the ADB said that “all direct and indirect digital infrastructure taxes should be rationalised, made competitive with other countries, and tax rates fixed for the sector for at least 10 years.”

Pakistan currently has 56.5 per cent broadband coverage and 137 million subscriptions, according to the report, each province imposes a regressive sales tax of 19.5 percent on internet service usage, higher than any other service.

“High investment costs, regulatory hurdles, expensive and complex right-of-way (RoW) arrangements, and high and unpredictable taxes are hindering new investment in Pakistan’s digital infrastructure,” the report said.

According to the report, Pakistan’s average revenue per user is among the lowest in the world, due to intense competition among service providers, and the revenue of operators and telecom companies is declining in real terms.

The report recommended rationalisation of right-of-way (RoW) fee per meter across the country and a predictable system of gradual increase over the long term so that telecom companies can install and maintain their infrastructure (like fiber optic cables, mobile towers, etc.).

The report further recommended prioritising early-stage investments in digital infrastructure projects, promoting indigenous manufacturing of smartphones, and providing 3 percent research and development allowance on exports of locally manufactured smartphones.

The ADB has advised the government to create a strong legal and regulatory framework for the development of digital infrastructure and the implementation of public-private partnerships (PPPs).

In addition, the report recommended increasing internet access and device ownership, especially for women, developing special PPP programmes with local and global partners, and providing citizens with smartphones at low cost or in easy installments.