ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government has prepared a draft e-commerce policy framework to pave way for holistic growth of e-commerce in the country through creating an enabling environment where small and large enterprises would have equal opportunity to grow steadily.
It is hoped that Pakistan’s e-commerce sector grows exponentially to claim a substantial share in global trade, which in turn will create employment opportunities and generate more revenues.
The overall share of the services sector in real Gross Domestic Product (GDP) is around 60 per cent at end of the fiscal year 2018, and around 56 per cent in nominal GDP, the latter is higher than South Asia’s average.
The service sector has been witnessing a shift towards the digitisation as growing internet penetration is revolutionising the way consumers and businesses gain and share information, executes transactions, and manages their day to day operations.
As per the draft policy framework document prepared by the Commerce Division, improving digital connectivity is reshaping consumer behaviour, which is increasingly tilted in favour of convenience, cost savings, and customised retail experiences.
Businesses are also capitalising on opportunities enraging from the digitisation, such as supply chain efficiency, lower transaction cost and enhanced flexibility in addressing consumer needs.
Pakistan is among economies where digitisation is triggering changes in some components of the service sector. The shift is most prominent in areas like e-commerce, fintech and e-government, where new ventures and approaches to deliver services are picking.
Specifically, the market size of e-commerce has grown significantly in Pakistan over last few years, transforming the way consumers interact with, and especially pay businesses.
The other objective of this initiative is to transform Pakistan into a significant player in a regional and global digital economy.
Listing the goals, the document further revealed that it would increase e-commerce industry’s growth to make this area one of the key drivers of Pakistan’s economy.
Another goal is to streamline regulatory framework for e-commerce businesses in Pakistan, to contribute achieving higher export growth through enhanced activities from e-commerce platforms, to promote small e-businesses and create employment opportunities through digital connectivity for empowering youth, especially in remote areas.
As per details, in 2017-18, the number of registered e-commerce merchants was 496 which reached 1,094 by year-end and was around 1,242 by first quarter of 2018-19. E-commerce transactions processed by these merchants are also increasing proportionately.
Pakistan’s e-commerce industry is emerging rapidly and has the potential to strengthen the country’s economy by creating more job opportunities, linking remote areas to the mainstream, development of small and medium enterprises and finally enhancing exports through online platforms.
For this, it is crucial to develop a policy framework for consumer protection, the role of the financial sector in optimising its growth and its revenue-generating potential in the medium and long run.
This policy framework provides a glimpse of the current status of Pakistan’s e-commerce as country’s basic laws concerning Information Technology (IT) extend legal recognition to transactions carried out in digital environment and electronic payments.
However, generally, e-commerce is regulated under statutes concerning traditional commerce. This gives rise to various concerns for industry and the concerned authorities. For addressing these issues, it is necessary to take measures for allowing re-export/re-shipment of goods, launch National Single Window (NSW) for speedy processing, especially for export of large volume of low-cost goods/items.
Moreover, in order to cater for possible impact of import of digital goods in Pakistan, infrastructure and technical capacity should be developed to enable the government to impose customs duties on such products on their import.
At present, there is no mechanism/registry for e-commerce businesses. This policy framework proposes registration of e-commerce businesses with the Securities & Exchange Commission of Pakistan (SECP) and making it mandatory for them to maintain a physical address in Pakistan.
In addition, for enhancing consumers’ trust, measures for protection against counterfeit goods and a code of conduct are proposed under this Policy Framework.
Moreover, with e-commerce enterprises making their presence felt, laws and regulations have been introduced to enable existing financial institutions to cater to electronic transactions and encourage new private sector intermediaries to enter the field.
However, a lot more is required to be done to address needs of a large segment of population, which the e-commerce industry shall target as its consumer base in the future.
In relation to this, it is essential to enable Card-Not-Present (CNP) transactions and explore the possibility of co-badging with international card payment schemes. Moreover, it is proposed that banking services should be improved for promoting use of local online merchant accounts by online businesses and exploring the possibility of establishing an international payment gateway in Pakistan.
Regarding consumer protection, the existing laws in the country do not contain specific provisions for addressing concerns of consumers transacting in digital environment. In relation to this, recommendations have been made for introducing specific amendments in these laws. An important aspect of consumer protection is ‘dispute resolution mechanism’.
This Policy Framework proposes that it should be mandatory for all online businesses to provide for an efficient customer support and dispute resolution mechanisms and federal and provincial governments should make arrangements for establishing independent alternate dispute resolution centres for expeditious settlement of disputes.
Taxation is another major issue for stakeholders of online marketplaces. The primary concerns relating to taxation are imposition of minimum income tax, withholding tax and provincial sales tax. This policy framework proposes that for purposes of provincial sales tax, online businesses should be treated at par with other businesses and parallel to that, provincial sales tax regimes should be harmonized to address concerns of online marketplaces.
Meanwhile, logistics play a pivotal role in the B2C model. The main area of concern to be addressed is system automation of B2C players and third-party-logistics (3PL) businesses.
In addition, within framework of Pakistan’s National Transport Policy, a policy on logistics shall be formulated to address concerns relating to e-commerce industry including expeditious processing for export of low-priced small consumer goods.
Another important area is Data Ownership and Localisation and is the most valuable resource in digital economy. To unleash the true potential of e-commerce, it is essential to localise data generated in Pakistan and prevent its transfer to any other country or any entity not incorporated in Pakistan for the utilization of local digital industry.
At present, Ministry of Information Technology and Telecommunication (MoIT) is in process of formulating Pakistan Cloud Policy. The said policy should also address issues concerning e-commerce.
Overall, this policy framework is aimed at ensuring reasonable growth of e-commerce, creating employment opportunities and generating revenue for the state.
The e-commerce draft policy should be shared with mainstream and digutat media and comments and suggestions for improvement should be invited from the stake holders such as the startups, SMEs the social media and digital media companies. The more complicated the policy the greater will be the chances of it’s failure. Instead of making it a complex regulatory and taxation document, let the policy be flexible and simplified for the digital business operators.
As far as taxation, it’s a no-brainer to kill the goose that is supposed to lay the “digital golden eggs” to contribute substantially to the service sector of Pakistan economy. E-commerce should have more incentives than the traditional businesses because initially they need cash flows to survive and scale up. So for the first three to five years they need support and motivation in the form of zero to low taxation and concessional loans for working capital.
A very critical point is the indigenization of the e-commerce will back fire. Most highly profitablee-commerce companies are profitable because they operate beyond their national borders, e.g., Amazon, Google, Facebook, Twitter, Microsoft, etc.
Even more important is the financial linkage without which no e-commerce can expect to thrive. A reliable international digital payment system such a PayPal must operate from Pakistan to earn customer trust. Without a robust linkage to a global financial system e-commerce in Pakistan cannot take off to achieve exponential growth.
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