The federal government is considering allowing tier-2 merchants (retailers) a tax break of at least five years. Sources told Raised by Numbers that this was discussed in a meeting chaired by the State Minister for Finance and Revenue, with officials from the Ministry of Finance, State Bank of Pakistan, Ministry of Information Technology, and Federal Board of Revenue also participating.

Sources said that the meeting discussed a plan for adopting a digital transactions system.

It was informed that approximately 95 percent of retail transactions (consumer to retailer) in Pakistan are cash-based. Sources added that the government might introduce a phased tax exemption plan, where the tax break is reduced gradually over five years, allowing merchants to adjust to the new system progressively.

The meeting also discussed that the government should move towards zero pricing on Raast Person to Merchant (P2M) transactions for receiving merchants.

A key initiative in this direction is to enhance the capabilities of financial institutions to leverage merchant transaction data, thereby enabling their entry into the data-based lending business.

Alongside this, regulatory and policy efforts towards establishing robust data protection and data-sharing protocols must be initiated, sources added.

State Bank officials informed that about 84% of the transactions in Pakistan are still over the counter, which should be enforced to be converted to account-based or wallet-based payments.

The central bank also proposed that government departments should start collecting digital payments by removing alternatives like over-the-counter payments.

The meeting also deliberated over the elimination of larger currency value notes (PKR 5,000 notes) to enforce the conversion of cash in circulation to digital or account-based forms. The participants of the meeting also deliberated on the tax incentives for banks that have a higher rate of digital transactions.

Although the government wants to maximize digital transactions, the ground reality is somewhat different.

The masses avoid mobile wallets and digital payment platforms due to poor scam control mechanisms by law enforcement agencies, including the Federal Investigation Agency.

The participants of the meeting also agreed that Pakistan should study the digitization model of neighboring country India, and the committee will update the PM of Pakistan on the adoption of digital transactions.

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