The Asian Development Bank (ADB) has proposed a 5% uniform general sales tax (GST) on all digital transactions to address Pakistan’s digital divide and boost its digital economy. The recommendation is part of ADB’s “Pakistan’s Digital Ecosystem” report, which outlines key challenges hindering digital access and usage in the country, particularly for women and rural populations.
The report emphasizes the need to simplify regulations and offer targeted incentives to support small businesses, tech exporters, and women-led digital enterprises. ADB also suggested a five-year input tax credit to encourage the adoption of digital payments and e-commerce. This move aims to reduce inefficiencies in cash-based transactions and improve economic documentation.
The report points out significant gender disparities in digital access. According to the GSMA’s 2023 Mobile Gender Gap Report, women in Pakistan are 35% less likely than men to own a mobile phone, and 38% less likely to use mobile internet. The gap is even more pronounced in rural areas where infrastructure for digital connectivity is limited.
Among the report’s key proposals is the need for a lower corporate tax rate, suggesting a 10% reduction for small and medium enterprises (SMEs) that formalize their operations and move to digital platforms. These reforms, the report suggests, would support the IT and business process outsourcing (BPO) sectors, areas seen as high-growth export opportunities for Pakistan.
In addition to the GST recommendation, ADB’s report also calls for policies that encourage digital education and tackle cultural and financial barriers that prevent wider adoption of digital technologies.Â
The report highlights that a lack of digital literacy, especially among women and in rural regions, exacerbates the already existing divide. Women in Pakistan, the report states, are also more likely to face online harassment and privacy concerns, further hindering their digital engagement.
To support women’s participation in the digital economy, the report recommends offering tax credits to women-led businesses involved in digital trade or IT-enabled services (ITeS), hoping to stimulate their inclusion in the growing digital market.
The report underscores that tackling the digital divide is not just about increasing infrastructure but also about making technology more affordable and accessible. By adopting these tax reforms and incentivizing digital transitions, Pakistan can make significant strides towards an inclusive digital economy that benefits all citizens, particularly marginalized groups.
