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Sunday June 23, 2024

Redefining taxation in the digital age

This pivotal goal, highlighting the necessity for investments in human capital, prompts a vital question: how can Pakistan achieve such growth?

By Aamir Ibrahim
May 31, 2024
A representational image of a tax files. — Pixabay
A representational image of a tax files. — Pixabay

AN IMF delegation has recently concluded its visit to Pakistan, focusing on a reform programme that shifts from economic stabilisation to fostering strong, inclusive, and resilient growth.

This pivotal goal, highlighting the necessity for investments in human capital, prompts a vital question: how can Pakistan achieve such growth?

The key lies in the digitisation of our economy, government, and society. With an impressive teledensity of approximately 80 per cent and a burgeoning mobile subscriber base, Pakistan is poised at the brink of a digital revolution. This digital shift is not just about technology but about transforming everyday life, enabling inclusive growth across urban and rural landscapes

The answer is clear: providing a smartphone in every hand, broadband in every home, and a QR code at every local store. By prioritising digital and financial inclusion, we can truly reap the benefits technological advancement has to offer. This should be at the forefront of our agenda for Pakistan’s progress. However, this ambition faces challenges. My belief in technology as the greatest equalizer stems from adopting a ‘3T Approach’ where Technology builds Trust and fosters Transparency. Now, we welcome a fourth T: Taxation. Boosting taxation is critical for the country’s economic growth. The dichotomy lies in two questions: How can we improve taxation using technology, and how can we facilitate taxation to ensure access to digital technologies remains affordable?

The solution is clear -- through strategic use of social media and digital platforms, the government can demystify tax obligations, showcasing how these contributions fuel public services and economic stability, thereby fostering a culture of compliance and civic responsibility

Moreover, the State Bank of Pakistan’s recent rollout of RAAST -- a government-managed micro-payment gateway -- marks a significant stride toward financial inclusion, enabling over 35 million Pakistanis to transact without fees. This initiative is crucial as we aim to deepen the digital footprint of our economy.Addressing the second question requires a holistic approach. While the benefits of digitisation are clear, they come with their own set of challenges, notably taxation. An equitable tax system is fundamental, ensuring that while the country advances digitally, accessibility remains unhindered for all segments of society.With users facing a tax rate of 34.5 per cent, including a 15 per cent withholding tax and 19.5 per cent sales tax, Pakistan ranks as one of the highest-taxed telecom markets globally.

The financial services sector faces similar issues. Taxation on digital payments at merchant locations needs rationalisation to promote digital over cash transactions. Reliance on cash fosters tax evasion as well as the informal economy, hindering Pakistan’s digital economy ambitions.

High exchange rates, restrictive import policies, and exorbitant handset taxes have also eroded smartphone affordability.

Reducing the tax burden is crucial to enhancing digital accessibility in Pakistan, but addressing the broader digital divide is equally essential. A stark gender gap in mobile ownership and internet usage -- the largest in Asia -- demands urgent action to overcome barriers exacerbated by high costs. Women, who comprise half of the population, need appropriate tools and skills for success in an increasingly digital world.

The UN highlights that women’s digital exclusion has cost low- and middle-income countries about $1 trillion in GDP over the past decade. Addressing this issue is not just a matter of fairness but an economic imperative, necessitating a targeted, gender-intentional strategy. Our course is clear: we must reduce the tax burden to improve digital access while expanding the tax base through digitization. This dual approach will not only broaden our economic foundation but also ensure a fair distribution of the tax load.A great example of a successful transformation is Rwanda, which launched Vision 2020 to transform its agro-based economy into a service-oriented, information-rich, and knowledge-based one driven by ICTs. Despite development challenges, Rwanda’s GDP shows promising growth of 7.6 per cent.

In India, economic growth and digitisation are being pursued collectively. Boosting access and affordability of digital technologies is the first step in this regard.

As Pakistan stands on the cusp of a digital transformation, the path forward involves a careful balancing act between advancing technology and reforming taxation. Let’s seize this moment to redefine our national destiny.


The author is the CEO of Jazz