ISLAMABAD, PAKISTAN — The Asian Development Bank (ADB) has urged Pakistan to implement a uniform 5 per cent general sales tax (GST) on all digital transactions in a bid to foster nationwide e-commerce adoption, reduce cash-based inefficiencies, and help document the informal economy.
In its latest report titled “Pakistan’s Digital Ecosystem,” released on Monday, the ADB warned that the country’s inconsistent and high taxation on digital infrastructure poses a significant risk to foreign investment and growth in the sector. It stressed that such policies have been detrimental to service providers and users alike, especially women and marginalised groups.
“Taxes on this sector, both federal and provincial, are among the highest in the world, and the lack of consistency in policy is discouraging investment,” the report noted.
The ADB observed a decline in revenues and foreign direct investment (FDI) in Pakistan’s telecom sector, reflecting what it called a “very challenging business environment.” It recommended that the government engage actively with investors and industry stakeholders to address their concerns and incentivize further investment.
Among its core proposals, the ADB suggested:
- A uniform 5% GST on all digital transactions across Pakistan.
- A 10-year, 10% reduction in corporate income tax and cost of doing business for SMEs, conditional on digital registration and use of digital platforms.
- Simplification of taxation and foreign exchange procedures for ICT export firms.
- A 15% cap on income tax for employees of ICT-exporting companies.
- Tax credits for women-led digital enterprises.
- Low-interest loans and mandated SME lending by commercial banks, with 50% focused on digital and ICT businesses.
- Fixed tax rates for the digital sector for at least 10 years.
It also proposed that the State Bank of Pakistan (SBP) require commercial banks to allocate at least 15% of their loan portfolios to SMEs, prioritising digital innovation and entrepreneurship.
Pakistan’s broadband penetration stands at 56.5%, with around 137 million active subscriptions. However, the report highlighted that each province imposes a regressive 19.5% sales tax on internet services — significantly higher than for most other services — further deepening the digital divide.
High capital costs, burdensome regulatory procedures, and inconsistent Right of Way (RoW) charges continue to be major barriers for telecom infrastructure expansion. The ADB recommended a nationwide fixed RoW fee per meter, indexed to inflation or other predictable metrics to encourage long-term investment.
Other recommendations included:
- Promoting early-stage investments in digital infrastructure.
- Supporting local smartphone manufacturing through tax incentives and R&D allowances.
- Expanding internet access and device affordability, especially for women.
- Introducing easy installment plans for smartphones and collaborating with global partners on digital public–private partnerships (PPPs).
To improve the sector’s long-term viability, the ADB emphasized the need for a strong legal and regulatory framework to facilitate digital infrastructure PPPs and remove administrative bottlenecks.
The report concluded by highlighting that unless Pakistan reforms its digital tax regime and reduces barriers to investment, its digital economy risks stagnation — further limiting its potential to drive broader economic growth and inclusion.
