IT Experts Call for National Data Exchange Layer to Boost Pakistan’s Digital Economy

Stakeholders in the IT industry, including exporters, academia, and policymakers, have recommended the establishment of a National Data Exchange Layer and the adoption of the Pakistan Digital Stack to digitize governance, regulation, and the economy. They emphasized that rationalizing taxes on digital services and infrastructure is key to encouraging investment and creating a more stable and prosperous future for Pakistan. The recommendations include rationalizing all digital infrastructure taxes—both direct and indirect—by making them competitive with a basket of countries and fixing sector tax rates for at least 10 years. A central proposal to drive digital transformation is the implementation of a 5% General Sales Tax (GST) on all digital transactions, compared to the current 18% tax on cash transactions. This lower tax rate for digital payments would not only reduce operational costs but also formalize the economy, enhance transparency, and improve tax collection. Additionally, reducing Pakistan’s corporate tax rate from 29% to below 20%, particularly for digital and non-digital enterprises, was highlighted as a critical step to attract investors. Pakistan’s current tax burden is disproportionately high compared to other developing nations. A lower tax regime would encourage business expansion, foster innovation, and make Pakistan more competitive regionally, driving job creation and foreign direct investment (FDI). These recommendations were presented in a white paper published by P@SHA. The report outlines a comprehensive roadmap for promoting a digitally inclusive and economically vibrant future for Pakistan. It calls for the establishment of a predictable policy framework to encourage private investments in digital public infrastructure (DPI). Furthermore, the rules and regulations governing digital businesses must support innovation and competition. Expand Internet Access and Device Ownership: Increase Internet access and smartphone ownership, especially for women, by working with local actors and global partners to design tailored public-private partnership (PPP) programs. Provide low-cost or installment-based smartphone options to citizens. Simplify Foreign Exchange Regulations: Address the significant hurdles posed by foreign exchange regulations for international companies operating in Pakistan. Simplifying these processes, particularly for IT firms, would attract more multinational tech companies, enabling them to establish operations, hire local talent, and contribute to economic growth. Cap Payroll Taxes for IT Companies: Reduce payroll taxes for IT companies to 6-8% (down from the current 24-25%) to boost the sector’s competitiveness. The resulting financial relief would allow companies to reinvest in talent and infrastructure, making Pakistan a more attractive destination compared to regional competitors like India. Legal Reforms and Capital Gains Tax Exemption for Startups: Establish specialized commercial courts and Alternate Dispute Resolution (ADR) tribunals to expedite dispute resolution for international companies, particularly in competition and financial matters. Additionally, implement a 20-year capital gains tax exemption for tech startups to encourage venture capital inflows. With Pakistan’s current capital gains tax at 15%, reducing or eliminating this tax would position the country as a more attractive destination for international investors, making it competitive with global hubs like Singapore.