Govt Finalizes E-Commerce Policy Framework for Online Stores in Pakistan - Android

The federal government has finalized E-commerce policy framework to create an enabling environment for holistic growth of e-commerce across all… Read More

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The federal government has finalized E-commerce policy framework to create an enabling environment for holistic growth of e-commerce across all sectors of the country, with a special focus on development and promotion of SMEs to transform Pakistan into a significant player in the regional and global digital economy.

According to the draft policy framework prepared by the Commerce Ministry, its main goal is to increase e-commerce industry’s growth to make it one of the key drivers of Pakistan’s economy.

The second goal is to streamline regulatory framework for e-commerce businesses in Pakistan, to contribute achieving higher export growth through enhanced activities from e-commerce platforms, to promote small e-businesses and create employment opportunities through digital connectivity for empowering youth, especially in remote areas.

In the first quarter of the financial year 2017-18, the number of registered e-commerce merchants was 496 which reached 1,094 by year-end and was around 1,242 by the first quarter of 2018-19. E-commerce transactions processed by these merchants are also increasing proportionately.

Pakistan’s e-commerce industry is emerging rapidly and has the potential to strengthen the country’s economy by creating more job opportunities, linking remote areas to the mainstream, development of small and medium enterprises and finally enhancing exports through online platforms. For this, it is crucial to develop a policy framework for consumer protection, the role of the financial sector in optimizing its growth and its revenue-generating potential in the medium and long run.

This policy framework provides a glimpse of the current status of Pakistan’s e-commerce with primary focus on:

Regulatory Framework

Pakistan’s basic laws concerning Information Technology (IT) extend legal recognition to transactions carried out in the digital environment and electronic payments. However, generally, e-commerce is regulated under the statutes concerning traditional commerce. This gives rise to various concerns for the industry and the concerned authorities. For addressing these issues it is necessary to take measures for allowing re-export/re-shipment of goods, launch National Single Window (NSW) for speedy processing, especially for the export of large volume of low-cost goods/items.

To cater for the possible impact of import of digital goods in Pakistan, infrastructure and technical capacity should be developed to enable the government to impose customs duties on such products on their import. At present, there is no mechanism/registry for e-commerce businesses. This policy framework proposes registration of e-commerce businesses with the Securities & Exchange Commission of Pakistan (SECP) and making it mandatory for them to maintain a physical address in Pakistan. In addition, for enhancing consumers’ trust, measures for protection against counterfeit goods and a code of conduct are proposed under this Policy Framework.

Payment Infrastructure

With e-commerce enterprises making their presence felt, laws and regulations have been introduced to enable the existing financial institutions to cater to electronic transactions and encourage new private sector intermediaries to enter the field. However, a lot more is required to be done to address the needs of a large segment of the population which the e-commerce industry shall target as its consumer base in the future.

In relation to this, it is essential to enable Card-Not-Present (CNP) transactions and explore the possibility of co-badging with international card payment schemes. Moreover, it is proposed that banking services should be improved for promoting the use of local online merchant accounts by online businesses and exploring the possibility of establishing an international payment gateway in Pakistan.

Consumer Protection

Existing consumer protection laws in Pakistan do not contain specific provisions for addressing concerns of consumers transacting in the digital environment. In relation to this, recommendations have been made for introducing specific amendments in these laws. An important aspect of consumer protection is ‘dispute resolution mechanism’. This Policy Framework proposes that it should be mandatory for all online businesses to provide for an efficient customer support and dispute resolution mechanisms and federal and provincial governments should make arrangements for establishing independent alternate dispute resolution centers for expeditious settlement of disputes.

Taxation Structure

Taxation is one of the major issues for stakeholders of online marketplaces. The primary concerns relating to taxation are the imposition of minimum income tax, withholding tax and provincial sales tax. This policy framework proposes that for the purposes of provincial sales tax, online businesses should be treated at par with other businesses and parallel to that, provincial sales tax regimes should be harmonized to address the concerns of online marketplaces.

Logistics and e-Commerce

In Pakistan, business-to-consumer (B2C) e-commerce model has grown significantly in the last few years and this trend is likely to continue. Logistics play a pivotal role in the B2C model. The main area of concern to be addressed is system automation of B2C players and third-party-logistics (3PL) businesses. In addition, within the framework of Pakistan’s National Transport Policy, a policy on logistics shall be formulated to address concerns relating to e-commerce industry including expeditious processing for export of low-priced small consumer goods.

Data Ownership and Localization

Data is termed as ‘oil’ of the digital industry and is the most valuable resource in the digital economy. To unleash the true potential of e-commerce, it is essential to localize the data generated in Pakistan and prevent its transfer to any other country or any entity not incorporated in Pakistan for the utilization of local digital industry. At present, the Ministry of Information Technology and Telecommunication (MoIT) is the process of formulating Pakistan Cloud Policy. The said policy should also address issues concerning e-commerce.

Small and medium enterprises (SMEs) can play a vital role in the growth of e-commerce. In order to improve their competitiveness and domestic and international e-commerce arena special incentives have been proposed for entrepreneurial training of e-commerce start-ups and formulation of policies for providing them micro-finance facilities.

Overall, this policy framework attempts to pave the way for holistic growth of e-commerce in Pakistan by creating an enabling environment in which small and large enterprises have equal opportunity to grow steadily. It is hoped that Pakistan’s e-commerce sector grows exponentially to claim a substantial share in global trade, which in turn will create employment opportunities and generate revenue for the state.

SBP’s Annual Report on the State of Economy 2017-18 shows that sales of local and international e-commerce merchants were Rs. 20.7 billion in 2017 growing by 93.7% in 2018 to reach Rs. 40.1 billion. These figures do not include all the post-paid cash-on-delivery transactions which account for 60% of the total value of e-commerce in Pakistan. Around 64% of Pakistan’s Population in under the age of 29 and the country will continue to enjoy the youth bulge for another 30 years or so, according to a report from United Nations Human Development, 2017.

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