ISLAMABAD: The Asian Development Bank (ADB) has urged Pakistan to implement a uniform 5 per cent general sales tax (GST) on all digital transactions — with an input tax credit for five years — to accelerate digital payments, promote e-commerce, and reduce cash-based inefficiencies in the economy.
In its report Pakistan’s Digital Ecosystem: A Diagnostic Report, the ADB also recommends cutting corporate income tax and the cost of doing business for small and medium enterprises (SMEs) by 10pc for the next 10 years, conditional on digital registration and transactions.
To attract global ICT investment, the report suggests simplifying taxation and foreign exchange regimes for ICT exporters. It proposes capping payroll taxation at 15pc of income for ICT-exporting firms and offering tax credits for hiring local talent.
A “Data Exchange Layer” and full adoption of the “Pakistan Digital Stack” are recommended to digitise governance and regulation. The report recommends establishing a dedicated technology financing window at the State Bank of Pakistan (SBP) to provide low-interest loans and guarantees to tech firms.
Recommends dedicated tech financing window at SBP, 20-year capital gains tax exemption on investment in start-ups
The SBP should direct commercial banks to allocate at least 15pc of their loan portfolios to SMEs, with half earmarked for digital and ICT businesses. Banks that exceed this target should be rewarded, while those that do not comply face penalties.
The ADB further proposes a 20-year capital gains tax exemption on investments in tech start-ups. Income from foreign venture capital and private investment in such ventures should also be exempt from tax for a period of seven years from the date of deployment.
To develop capital markets, the report advises the SBP and Securities and Exchange Commission of Pakistan to set annual targets—alongside the Pakistan Software Export Board and the Pakistan Software Houses Association—for listing tech companies on the Pakistan Stock Exchange. The target is to increase tech listings to 5pc of total PSX listings by 2027 and 12pc by 2030.
Only 17.7pc of Pakistanis currently use digital payments, with 59 million payment cards issued — just 24pc of the population, compared to 71pc in India. Pakistan also ranks eighth globally in cryptocurrency adoption, largely as a hedge against the rupee, which depreciated 165pc between 2017 and 2024.
E-commerce spending reached $10bn in 2023, well below Bangladesh’s $16bn. Major barriers include limited POS infrastructure, cash-on-delivery practices, and low digital literacy.
Pakistan hosts around 18,000 tech and digital businesses across over 130 cities and towns, indicating the sector’s potential to generate foreign exchange and uplift smaller economies. Yet, the country has only 125,593 point-of-sale (POS) terminals — among the lowest in the region.
Digital adoption among SMEs remains weak due to policy unpredictability, tax uncertainty, and regulatory burdens. Bank credit to SMEs stands at just 4.3pc and to agriculture at 3.6pc — both the lowest in the region. Meanwhile, commercial banks lend up to 85pc of their portfolios to the government, drawn by sovereign guarantees and low default risk.
The mobile gaming and app development industry is gaining ground, with revenues of around $500m. The global market is projected to reach $799bn by 2027, growing at a 9.7pc annual rate. Pakistani-developed games experienced a threefold increase in downloads compared to the global average in 2022.
The report says growing ICT adoption in Pakistan is fostering a tech-savvy workforce in small towns, enabling high-paying jobs and new service sectors such as logistics, banking, hospitality, and entertainment.
Published in Dawn, July 16th, 2025