Digital lag

Policymakers and business leaders have discussed extensively the potential of digital payments and a ‘cashless economy’ for Pakistan’s economy, governance, and overall quality of life. And, in all fairness, the hype is largely justified. Digitisation has the potential to bank the unbanked, tax the untaxed, register the unregistered, whether for votes or healthcare, and educate the uneducated. According to a report released by the Asian Development Bank this month – ‘Pakistan’s Digital Ecosystem: A Diagnostic Report’ – while the country has made notable progress in its nascent digital journey, there remain opportunities for Pakistan to further accelerate its digital advancement and keep pace with regional and global advancements. The report shows that Pakistan still lags behind regional peers in several facets of the digital economy. Despite all the lip service paid to digital payments in recent years, the ADB finds that only 17.7 per cent of Pakistanis use digital payments and that payment cards issued by the country’s banks and financial institutions cover just 24 per cent of the population, as compared to 71 per cent in India. While Pakistan’s e-commerce spending crossed $10 billion in 2023, it is still among the lowest in South Asia, well behind Bangladesh’s $16 billion. The report also points to worrying gaps within Pakistan when it comes to digital technology adoption, with women 35 per cent less likely than men to own a phone and 38 per cent less likely to use mobile internet and also an urban-rural digital divide.

In terms of solutions, the report focuses on fine-tuning taxation and lending policies in order to drive the digital economy. It recommends a uniform 5.0 per cent digital sales tax on all digital transactions, lower corporate income taxes and cost-of-doing-business for SMEs and capping payroll taxes at 15 per cent for ICT exporters and offering tax credits for hiring local talent. It also calls for the SBP to direct commercial banks to allocate at least 15 per cent of their loan portfolios to SMEs, with a minimum 50 per cent emphasis on digital and ICT businesses. The importance of investing in resilient digital infrastructure is also highlighted. While these are all worthy suggestions, one wonders if the country can actually afford them, squeezed as it is for revenues to stay solvent. IT, particularly e-commerce, is one of the few economic sectors in the country that is actually growing and has a trade surplus, exporting more than it imports. In an otherwise bleak economic landscape, this would seem to guarantee that a state starved of revenues will seek to tax it more. While recent decades have taught Pakistan that no sector should be untaxable or overly favoured, there is a need to balance revenue collection with the imperative to accelerate digitisation going forward.

More importantly, one must note that Pakistan trailing regional peers in digital adoption not only points to weaknesses in digital policy but also the fact that the digital transition in India and Bangladesh has been built on stronger foundations. These countries have performed much better than Pakistan when it comes to areas like education and basic infrastructure. A population with higher education levels, better roads and more consistent power supply will have an easier time adopting digital platforms and services as the latter’s success is highly contingent on the former. As such, Pakistan’s digital lag will not go away without an overall improvement in governance and more successful efforts to uplift its people.