IT Experts Urge Creation of National Data Exchange Layer to Strengthen Pakistan’s Digital Economy

Stakeholders in Pakistan’s IT industry, including exporters, academia, and policymakers, have put forward key recommendations to accelerate the country’s digital transformation and boost its economic growth. Central to their proposals are the creation of a National Data Exchange Layer and the adoption of the Pakistan Digital Stack to streamline governance, regulation, and the economy.

Key Recommendations for Digital Transformation

1. Rationalize Taxes on Digital Services and Infrastructure
   A major suggestion is to rationalize taxes on digital services and infrastructure to foster investment. This involves:
   • Making digital infrastructure taxes competitive with other countries.
   • Setting sector-specific tax rates for at least 10 years to provide stability.
2. Propose a Reduced General Sales Tax (GST) on Digital Transactions
   One of the most pivotal proposals is to reduce the General Sales Tax (GST) on digital transactions to 5% (down from 18% on cash transactions). This would lower operational costs, encourage digital payments, formalize the economy, and improve tax collection efficiency.
3. Reduce Corporate Tax Rates for Digital Enterprises
   The proposal also includes reducing corporate tax rates from 29% to below 20% for both digital and non-digital enterprises. This move is aimed at making Pakistan more competitive regionally, attracting foreign direct investment (FDI), driving innovation, and creating more jobs. Pakistan’s current tax burden is higher than many other developing nations, making it less attractive for business.

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Supporting Measures to Drive Digital Economy Growth

1. Expand Internet Access and Smartphone Ownership
   Stakeholders recommend increasing internet access and smartphone ownership, especially for women. The plan includes public-private partnerships (PPP) with local and global actors to make smartphones more affordable, particularly through installment-based options.
2. Simplify Foreign Exchange Regulations
   Simplifying the foreign exchange regulations for international companies, especially IT firms, is another key recommendation. Streamlining these processes would encourage more multinational tech companies to set up operations in Pakistan, fostering job creation and contributing to economic growth.
3. Cap Payroll Taxes for IT Companies
   Reducing payroll taxes for IT companies from 24-25% to 6-8% would provide financial relief, allowing businesses to reinvest in infrastructure and talent development. This would improve Pakistan’s competitiveness, especially compared to regional rivals like India.
4. Legal Reforms and Capital Gains Tax Exemption for Startups
   The white paper also advocates for the establishment of specialized commercial courts and Alternate Dispute Resolution (ADR) tribunals to expedite dispute resolution, particularly in competition and financial matters. Additionally, a 20-year capital gains tax exemption for tech startups is recommended to attract venture capital inflows. The current 15% capital gains tax in Pakistan discourages investment, while offering an exemption would make the country more attractive compared to global tech hubs like Singapore.

Conclusion

These recommendations, presented in a white paper by P@SHA, aim to create a digitally inclusive and economically vibrant future for Pakistan. By implementing a predictable policy framework, rationalizing taxes, improving access to technology, and simplifying regulations, Pakistan can position itself as a competitive destination for global digital enterprises and investors.