Are we doing sufficient digitalisation?
The reason why Pakistan is still lagging behind is its conservative regulatory landscape, which does not cater the fintechs in the digital payments space. PHOTO: REUTERS
While the world rushes towards increased adoption of digitalisation, Pakistan is still lagging far behind.
In the “new world” of Covid-19, people are progressively becoming more comfortable with distant learning, virtual meetings and online purchasing. Developed countries’ experience shows the transformative impact of digitalisation.
Internationally, there is a lot of discussion that countries should make structured efforts for creation and harnessing benefits of digital economy. There are increasing returns and prospects of long-run growth with the help of digitalisation.
But what is digitalisation? This concept is constantly evolving due to its multifaceted and dynamic nature. Digital economy is also referred to as internet economy, “new economy”, or web economy.
The Organisation for Economic Cooperation and Development (OECD) defines it as an economy that relies on internet to facilitate and execute trade in goods and services through electronic commerce.
Several international studies show that it is now difficult to distinguish the digital economy from the mainstream economy due to its incorporation into all sectors including but not limited to financial services, media, healthcare and education. The rapid global technological progress has helped reduce prices of information and communication technology (ICT) products. The adoption of these products has enhanced productivity, increased market reach and caused a significant decrease in the cost of operations.
ICT has helped change the way goods and services are manufactured and delivered along with the evolution of payment mechanism.
This development initially started with the online retailers using the traditional business models. Now the retail sector has enabled online orders and made use of customer data to personalise services and advertising.
In transport and logistics, tracking of cargo across continents has been made possible. Similarly, remote learning in the education sector has seen exponential changes mainly driven by Covid-19.
Streaming and online collaboration portals along with video conferencing have allowed continued provision of educational services. The same goes for the health sector. Digitalisation has led to the creation of new jobs and increase in e-commerce platforms that have seen a mushroom growth in the group of micro-entrepreneurs.
Read: Digitalisation expedites forex approval process
Barriers to digital inclusion
Keeping all this in mind, it is sad that digitalisation has not been the same for everyone in Pakistan. The poor are still struggling with technology adoption, partly due to lack of skills and partly due to resource constraints.
The main barriers to digital inclusion are affordability, taxation, network coverage and policy uncertainty. At this very important juncture, the government needs to take radical measures including the reduction in the general sales tax applied to Pakistan’s telecom sector. Currently, the tax rate is 19.5%.
While it gets increasingly difficult for the country’s government to tax the digital economy, non-resident companies may shift profits to those locations which offer a more favourable tax regime. This, in turn, may increase pressure on the existing taxpayers, who will be further tapped to cover the loss of tax revenue.
New digital products or means of delivering services have led to an unclear payment mechanism, specifically in the context of cloud computing. The application of the concept of Laffer curve is very much needed.
Tax should be low enough to attract investment as compared to regional partners, but also enough to generate healthy revenue for the government. Modern and uniform regulations should be implemented so that there is easy access to the digital content and there is protection for businesses.
The government needs to re-invent technology-related policies in an agile way and needs to update them frequently to cater to the dynamic nature of technology.
Government laws should not in any way discourage innovation in digital business. It is expected that the creation of Special Technology Zones (STZs) in January 2021 will be beneficial in this regard. But much needs to be done.
The government should announce incentive packages for investment for the creation of local technology platforms. It can also boost the e-commerce ecosystem by giving tax holidays on the creation of logistic companies catering to e-commerce sales.
In connection to this, the government should ensure broad and affordable access to broadband even in far flung areas of the country.
Quantum leaps in artificial intelligence and robotics have made it challenging to keep pace with these disruptive technologies. The effects of these changes have already started to create a mismatch between demand and supply in the labour market.
To enhance digital skills of the masses, minimum digital skills should be introduced in the national curricula. There is a need to work with schools for digital and enterprise skills development and ensure the organisation of summer schools and entrepreneurial programmes.
Pakistan needs to focus on the creation of a “liquid workforce”, which is quick to adapt to the dynamic nature of the labour market.
Read more: Pakistan embraces digitalisation in 2020
Access to education
To reduce the huge digital divide, especially in the context of its impact on access to education, the taxes on less expensive smartphones (less than Rs25,000) should be reduced. This will especially help in the inclusion of remote village areas.
The Covid-enforced lockdown has severely affected access to education, especially for the disadvantaged. Without access to technology, these children have suffered immensely and the divide between the affluent and the poor in getting education has widened further. Government policy should come up with ways to include these people in the digital era.
To document the large informal economy, there should be reduction in sales tax to 5% on digital and card payments and all federal and provincial citizen service payments should be made through digital means with mandatory digital payments by 2025. Data protection law should be improved. Cybersecurity risks have augmented and there is a need for public-private partnership for the creation of a more secure ecosystem.
Without cybersecurity across the spectrum of digital economy, the environment will not be conducive for attracting new investment and growing business. The government needs to identify the opportunities attached to digitalisation and take timely action for benefitting from the digital economy.
To leverage the opportunity and minimise the risk of lagging behind other countries, the government needs to strengthen collaboration with international communities and prioritise national digital readiness.
It should promote the country as a digital destination by demonstrating the ecosystem development. Lessons can be derived from other countries such as Cambodia, which have grown by nurturing the digital economy.
Better and critical dialogues are needed to identify new ways for the development of Pakistan’s digital economy. Digital economy is a question of not just opportunity but necessity.
It demands active engagement of all stakeholders to partake the activity of this “economic gardening”.
The writer is a PhD scholar at IBA, Karachi
Published in The Express Tribune, April 19th, 2021.
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