The Asian Development Bank (ADB) has recommended that Pakistan introduce a uniform 5% general sales tax (GST) on all digital transactions to stimulate the country’s e-commerce market, document the economy, and reduce inefficiencies associated with cash-based systems.
In its latest report on Pakistan’s digital ecosystem released yesterday, the ADB highlighted that the country’s digital infrastructure faces significant hurdles due to high and inconsistent taxes, which are among the steepest both regionally and globally. These policies, the report noted, discourage foreign investment and slow the growth of digital services essential for Pakistan’s economic progress.
According to the report, Pakistan currently has around 56.5% broadband penetration with approximately 137 million subscriptions. Despite this, each province continues to impose a regressive sales tax of 19.5% on internet usage — a rate notably higher than for other services. The ADB warned that this heavy taxation, alongside rising operational costs, hampers the telecom sector, which has already witnessed a decline in revenues and foreign investment due to an uncertain business climate.
The report stressed that the cost of providing digital services further widens the digital divide, particularly affecting women and marginalized communities who face both cultural and financial barriers to internet access.
To reverse this trend, the ADB urged the government to rationalize digital infrastructure taxes, ensuring competitiveness compared to peer countries, and to stabilize these tax rates for at least the next decade. It also suggested revisiting capital investment strategies and simplifying regulatory processes to make it easier for telecom companies to expand their networks.
The ADB also highlighted Pakistan’s unusually low average revenue per user, a consequence of intense price competition among service providers, which limits their ability to reinvest in modern digital infrastructure. To attract new investment, the report proposed a flat nationwide Right of Way (RoW) fee structure for laying fiber optic cables and mobile towers, with predictable increases over time.
Additional recommendations included early-stage funding for digital infrastructure projects, incentives to promote local smartphone production, and a 3% research and development allowance on exports of locally manufactured smartphones. The report further advised the government to introduce a strong legal and regulatory framework to support public–private partnerships (PPPs) in the digital sector, enabling smoother collaboration between local and global investors.
Expanding internet access and device ownership, particularly for women, was another key recommendation. The ADB suggested the government work closely with partners to create tailored PPP programs, as well as offer affordable smartphones through installment plans or subsidized pricing.
Overall, the report emphasized that adopting a uniform 5% GST on digital transactions, coupled with policy reforms, would help Pakistan enhance its digital infrastructure, encourage e-commerce growth, and strengthen documentation of the economy, ultimately improving competitiveness and fostering long-term economic stability.
