Pakistan to launch state-of-the-art e-payment gateway

Govt exempts start-up software houses from income tax for first three years

KARACHI: Finance Minister Ishaq Dar announced on Friday that Pakistan would open international electronic payment gateways ahead of the likely arrival of PayPal and Alipay in the country.

While presenting the budget for 2017-18 in the National Assembly, the finance minister said the State Bank of Pakistan (SBP) was developing a state-of-the-art e-gateway at a cost of Rs200 million.

“The system will facilitate transactions through mobile banking,” he said. “The Rs200-million investment is being undertaken by the SBP.”



Even though PayPal is a world-renowned international e-payment system, Alipay is not as common across the globe. However, recently, Prime Minister Nawaz Sharif developed an understanding with Alibaba Group Founder and Executive Chairman Jack Ma, who also owns Alipay, to open its office in Pakistan. Alipay will enable Chinese and Pakistani traders to make easy e-payments between the two countries.

Meanwhile, information and communications technology expert Parvez Iftikhar said the establishment of the e-gateway system at the highest regulatory level - the SBP - was an effort towards replacing the existing manual trade payment system by opening Letters of Credit.



Digital Pakistan

The finance minister said the telecommunication sector was one of the important pillars of the country’s economic development. Hence, in order to further incentivise the sector, customs duties at the rates of 11% and 16% were being withdrawn and a uniform rate of 9% regulatory duty was being levied on telecom equipment in the coming fiscal year.

Additionally, Dar said start-up software houses would be exempted from income tax for the first three years. Similarly, exports of information technology (IT) services from Islamabad and other federal territories will be exempted from sales tax.

Mobile phone industry - another important element in the IT sector - received a further relief as withholding income tax on mobile calls was reduced from 14% to 12.5% and federal excise duty was reduced from 18.5% to 17%.

“We hope that provincial governments will also reduce the rate of sales tax on mobile industry,” he said. “In order to encourage the use of smartphones, the customs duty will be reduced from Rs1,000 to Rs650.”

Iftikhar commended the incentives and tax relief for the IT sector, which were meant to enable industrial players to invest more in the sector. “Digitalising Pakistan is the way forward. This is how we will cope with the developed countries,” he said.

Nevertheless, he added more could have been done to achieve a faster growth in the sector. “Reduction of withholding tax on phone calls and duty on smartphones is an encouraging development. However, calls and phones should have been made tax-free in the larger interest of digitalising the economy.”

Branchless banking

Dar announced exemption from withholding tax on cash withdrawals by branchless banking agents.

The move has been undertaken to realise the government’s dream of providing 50% adult population of Pakistan access to banks under its Financial Inclusion Strategy 2020. At present, 25% adult population has access to formal banking channels.



Iftikhar said the exemption from withholding tax on cash withdrawals under branchless banking would enable the government to document the economy, which would be one of the great efforts towards minimising the size of undocumented economy.

“Progress in almost every sector of the economy - like banking, agriculture, education, health and governance - is now linked with adoption of telecommunication,” he said.

Meanwhile, Jazz Director Communications Anjum Rahman said the government was supporting the agenda of ‘Digital Pakistan’, which was in line with the company’s vision and aspirations.

Published in The Express Tribune, May 27^th, 2017.

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