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E-Commerce in Pakistan, The Tax Story

1 month ago

Analysis

Stories are meant to have happy endings, at least those belonging to economy MUST have happy endings. What’s the point of having a story otherwise?  While the tax story of the e-commerce sector I’m going to narrate here still hasn’t met its end, we can study its development so far and gaze at our crystal ball to make a few guesses. Perhaps there’s a happy ending … who knows!

The tax story of e-commerce industry in Pakistan, begins at a note of displeasure. The PM Nawaz Sharif, not mostly in news for strategic or policy statements unless it’s about roads infrastructure, expressed strong displeasure at the inability of Ministry of Commerce in developing a comprehensive national e-commerce policy. This was in August 2016, and the ministry, by then, had been working over developing the policy for over a year.

In an official letter (1) issued by the PM Secretariat, it termed the outline of the framework presented by the ministry unsatisfactory, and further went on to say:

“The premier has noted with concern that the commerce ministry has apparently not been able to achieve substantial progress on e-commerce.”

The letter offered a number of recommendations to the draft framework and suggested several ways to the ministry’s committee in formulating the draft policy. It gave a period of one month to the committee to rework and draft an acceptable e-policy framework.

Salient Proposals Offered By the Trashed E-Commerce Policy Draft

  • The development of logistic systems powered by GPS and cell phones
  • Up-gradation and integration of Pakistan Post’s Operations in consultation with the ministry of communications
  • Changes in trade regulations, to make them more supportive of e-commerce
  • Involvement of educational institutions for promoting entrepreneurial and consumer digital literacy
  • Legislation for regulation on privacy, consumer protection and conflict resolution
  • Institutional arrangement for continuous analysis of e-commerce

The policy draft prepared by the Commerce ministry’s 48-member policy unit: National Advisory Council (NAC) on e-commerce – which included representatives of all relevant ministries/departments – observed that the size of e-commerce in Pakistan would reach $1 billion by 2020.

Recommendations Offered By The PM Office For The E-Commerce Policy Draft

In significant input by the PM Office, the ministry was asked to establish a working group with representatives from public as well as the private sector to expedite the work and present the country’s e-commerce policy for approval by 15 September 2016.

The draft e-policy, it was urged, should incorporate:

  • Availability and reliability of ICT infrastructure / platforms
  • Development of supportive financial services regulations
  • A framework of laws for e-signature and e-contracting
  • Development of a national platform for e-commerce related financial transactions

Came September …

… And went. The ministry failed to implement the PM directives.

See? This is the interesting bit about stories. They’re flexible and can be played around, just like a Premier’s directives.

In the following weeks, the Prime Minister constituted a board to oversee the cross-institutional efforts of creating an e-commerce Policy Framework being coordinated by the Ministry of Commerce.

E-commerce Policy Board

It was on December 21st 2016, that the E-commerce Policy Board held its first policy meeting (2). Chaired by the Finance Minister Ishaq Dar, the maiden board meeting was attended by the Commerce Minister Engineer Khurram Dastagir Khan, Minister of State for IT and Telecom Anusha Rehman, State Bank of Pakistan governor, SECP chairman, FBR chairman, IT secretary, Communications secretary, private sector representatives and senior officials of the Ministry of Finance, Ministry of Commerce and SBP.

After a detailed discussion to devise a comprehensive e-commerce Policy, the board approved formulation of five Working Groups with representatives from both the public and private sectors:

  • Taxation
  • Payment Infrastructure
  • Regulatory Framework
  • Logistics
  • E-Commerce, WTO & Development

In other developments, the board also agreed upon developing a holistic regulatory framework in consultation with all stakeholders to promote and ease e-Commerce.

Cheering his team members the commerce minister referred to his statement issued earlier in the month: (3)

Our stakeholders said, “we have missed the plastic phase of ecommerce revolution; we cannot afford to miss the mobile digital phase of ecommerce”.

No good story is ever without a sense of teamwork, so there’s that. We’re on track so far.

Formulating national laws governing digital trade in today’s global village, however, requires more than camaraderie.

In a report filed by Pakistan Today (4) earlier this month, it has been revealed by an official at the Commerce Ministry that the process of developing a legal framework for regulating the e-commerce sector in Pakistan may take much longer than being assumed at the moment. The official said:

“E-commerce as an opportunity of broadening domestic and international trade is not only a challenge for Pakistan but for many other Asian countries. We need to make the policy carefully and after the required homework. We will first introduce the policy for domestic business and trade. Once it is successfully applied domestically, the government may link the same with international trade. This is not an easy task since many technical and legal issues exist which need to be dealt with before finalising the e-commerce policy.”

Happening In the Middle of March 2017: Tax Policy Conference

While we news watchers couldn’t manage to hear of the E-commerce Policy Board ever again, there came another news …

For the first time a Tax Policy Conference is going to be held in FBR to draft budget proposals for 2017-18. (5)

Now, this is where things begin to get spicy.

As the development suggests, in a revenue generation measure of the Federal Board of Revenue (FBR), some exclusive taxation of e-commerce sector is on cards in the budget (2017-18).

Taking place today, 16 March 2017, the Tax Policy Conference is going to be the first ever occasion of drafting budget proposals. A new concept during budget preparation exercise, the Tax Policy Conference is going to feature compilation of budget proposals including taxation of e-commerce in coming budget. As per the FBR description of e-commerce, following industry categories fall in this sector:

  • Business activities taking place through internet
  • Online shopping
  • Online trade
  • Other electronic transactions through internet etc.

The conference agenda includes:

  • Identifying areas as having revenue potential for optimum realisation of taxes
  • Broadening of tax base
  • Measures for improvement in the tax to GDP ratio
  • Rationalisation/analysis of tax exemptions
  • Withholding taxes application for economic development
  • Taxation of e-commerce

On Thursday, the proceedings of the Tax Policy Conference would confirm the significance of e-commerce sector for the government. Is it seen as a contributor to the country’s economic resurgence that must be nurtured, or merely a sacrificial animal, becomes clear today.

Pakistan standing at 122 mark at the Global Enabling Trade Index, maintains an e-commerce sector about to be valued over $1 billion within next two years. According to World Bank data, country’s swelling consumer economy amounts to almost 90% of the country’s GDP, which is the highest in the region (6). In Pakistan, broadband penetration rate has doubled every single year since 2013. By year 2010, 60 million people are estimated to turn into mobile broadband (3G and 4G) users in Pakistan. The Global Findex report shows Pakistan lead mobile banking transactions in South Asia with 11 per cent of citizens using mobile phones to carry out financial transactions (7). Country’s budding entrepreneurship ecosystem data shows that 75pc of total order volume takes place through mobile devices.

These obvious strengths, in addition to a flourishing middle class, are neon indicators of an economy on track. So here we approach the good end of the current chapter of the economy story we began a few blocks above. The Tax Policy, however, is the blind turn in the road we could later be terming as the plot twist.

You must be wondering that there’s been anguish, cheer, drama, thrill … but no suspense! Now, let us tackle that bit too. For a supremely productive e-commerce sector, fulfilling 95 pc of their orders using COD model (8) and still struggling with customer trust deficit due to vendor limitations and logistics issues, the most intriguing bit of the story is silence.

Shrouded in mystery is the absence of interest exhibited by the e-commerce industry over the lack of a policy framework in the country, which is not only an impediment towards a robust industry, but is also not helping the case of customer trust deficit.

Lets see where does the blind turn in the road lead. Perhaps there’s a happy ending … who knows!

Leenah is an observer of the global arena of brands and marketing. She can be reached through https://www.linkedin.com/in/leenahnasir.

PakWired.com is all about business, technology, and the startup culture in Pakistan. If you have an interest in e-commerce, telecommunications, or general business and technological advancements, you’ll love PakWired.

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