SBP advises working groups to address taxation issues

KARACHI: The State Bank of Pakistan (SBP) on Wednesday advised the formation of working groups to address specific issues related to taxation in digital financial services, integration of government agencies with instant payment system and the availability of seamless internet connectivity across the country.

In the fourth stakeholders’ meeting on digital financial ecosystem, SBP Governor Reza Baqir called for critical review of the digital bank regulatory framework proposed to promote online financial transactions.

Baqir encouraged stakeholders to critically review the framework and share their feedback to enable improvements. He also informed stakeholders of progress made towards concluding charges for inter-bank funds transfers.

The goal of stakeholder meetings is to accelerate the agenda on promoting digital financial services and support coordination in cross-cutting issues.

Federal Board of Revenue chairman, World Bank country director, representatives from Accountant General of Pakistan Revenue, Controller General of Accounts, banks and other attended the meeting.

Governor Baqir briefed the forum about the significant progress made on instant payment system Raast and developments on its integration with various government agencies.

“Despite COVID-19 disruptions, SBP has been diligently working with its partner institutions to be on the roadmap,” he said.

It was agreed to establish a forum to propose recommendations in the areas in line with international best practices.

Banks and microfinance banks have already been integrated with Raast, while the central bank signed an agreement with Controller General of Accounts Pakistan to digitise government payments.

Raast is a flagship initiative of SBP, which provides simple, fast, low-cost, interoperable and secure electronic payment platform for instant processing of high volume retail payments. Raast also has the ability to make payments to multiple beneficiaries at a time in order to cater high volume government payments like salaries, pension and social security payments.

Digital payments only account for 0.2 percent of Pakistan’s financial transactions, whereas the share of digital transactions in peer countries ranges from 1.5 percent to 7 percent.

This can be primarily be attributed to the challenges within the payment ecosystem, which include limited interoperability, high cost of digital payment transactions, poor user experience and lack of security, said the SBP.

A digital bank serves customers primarily through digital/electronic channels without having brick and mortar branches like traditional banks.

The proposed framework entails guidelines for licensing, and supplementary regulations for digital banks. It sets out different types of digital bank licenses, constitution models, minimum eligibility criteria and competencies for sponsors, directors, and CEOs.