The Asian Development Bank (ADB) has advised Pakistan to impose a uniform 5 percent general sales tax (GST) on all digital transactions. The recommendation comes as part of ADB’s latest report on Pakistan’s Digital Ecosystem, released yesterday, which lays out a comprehensive roadmap for modernizing the country’s digital infrastructure and stimulating growth in the e-commerce sector.
The ADB believes a consistent nationwide GST on digital transactions could encourage wider adoption of online platforms, reduce inefficiencies tied to cash-based commerce, and help bring more of the informal economy into the documented fold. This, the report argues, would not only boost government revenues but also create a more transparent business environment that can draw foreign investment.
However, the report raised concerns over Pakistan’s existing tax regime on digital infrastructure, labeling it as one of the highest globally and regionally. It warned that the current mix of steep and inconsistent taxes — spanning both federal and provincial levels — risks undermining investor confidence and throttling the expansion of digital services.
“Pakistan’s digital infrastructure faces a major challenge from high taxation. Taxes on this sector, both federal and provincial, are some of the highest globally and regionally, and the tax policies tend not to be very consistent,” the report noted. It further highlighted that these high costs disproportionately hurt women and marginalized communities, deepening the digital divide by making internet access less affordable.
In addition to pushing for a flat 5 percent GST on digital transactions, the ADB recommended cutting corporate tax rates and reducing the overall cost of doing business for small and medium enterprises (SMEs) by 10 percent over the next decade. This incentive would be conditional on businesses registering formally and utilizing digital platforms for their operations, aimed at accelerating formalization and digital adoption across Pakistan’s largely cash-driven SME landscape.
The report also proposed measures to simplify taxation and foreign exchange regulations for ICT export companies, alongside capping income tax at 15 percent for their employees. Other suggestions included offering tax credits to women-led digital enterprises, launching low-interest loan schemes, and mandating that commercial banks — under the supervision of the State Bank of Pakistan — allocate at least 15 percent of their lending portfolios to SMEs, with at least half of that going toward digital and ICT businesses.
On the infrastructure side, the ADB recommended setting a flat, countrywide right-of-way fee for telecom firms to install and maintain essential components like fiber optic cables and mobile towers, paired with a predictable price adjustment formula to offer long-term stability. The report pointed out that Pakistan’s telecom sector continues to struggle with declining revenues and a challenging investment climate, worsened by burdensome regulations and unpredictable taxes.
ADB data showed that broadband penetration in Pakistan stands at 56.5 percent, with around 137 million subscriptions. Yet each province currently imposes a 19.5 percent sales tax on internet services — higher than on any other service — discouraging uptake and investment.
Looking ahead, the ADB urged the government to prioritize early-stage investments in digital infrastructure, promote local smartphone manufacturing with a 3 percent R&D allowance on exports, and develop a clear legal framework to enable robust public–private partnerships (PPPs) in the sector. Expanding device ownership, especially among women, and introducing affordable installment-based smartphone schemes were also highlighted as essential for bridging the digital divide.
These recommendations reflect a broader push to create an investor-friendly, inclusive, and technology-driven economy in Pakistan — one that leverages digital transformation to drive long-term growth and bring more citizens into the formal financial and economic ecosystem.