By Abdul Wajid Khan

ISLAMABAD, October 26 (INP-WealthPK) - Leading economists urge the government to fast-track the process of digital financial inclusion in order to enhance tax revenue. Since its inception, Pakistan has been struggling for sustainable, durable economic growth due to its very low tax-to-GDP ratio, less volume of exports and other factors. The current position of tax revenue and exports is far below its real potential, as the tax to GDP ratio is around 10 percent. Talking to INP-WealthPK, Dr. Sajid Amin, senior research fellow and chief of Sustainable Development Policy Institute’s Policy Solution Lab, said Pakistan was far behind in digital financial inclusion, particularly in digital payments, because the share of cash payment in its economy was very large. He said steps must be taken to boost digital financial inclusion to increase tax revenue and enhances the capacity and capability of track and trace systems to boost tax base.

Digital payment should be prioritized Financial inclusion mostly refers to the provision of equal opportunities for individuals and businesses to access suitable, affordable and timely financial services. It leads to documentation of economic activities, brings informal economy into the tax net and shrinks the shadow economy. “In the first stage, the government must fully digitalize payment of salaries and pensions because expenditure under these heads contributes around 25 percent of the country’s non-development expenditure. Online transfer of salaries and pensions will be a major initiative towards digitalization of payments. Also, in Pakistan, the major problem for a poor person is inaccesibility to the financial market. Financial inclusion offers financial services to the common people and creates more opportunities of livelihood, investment, health and educational services. Dr. Sajid Amin said the outreach of digital financial inclusion was higher than the traditional financial inclusion and its cost was low. He lauded the State Bank of Pakistan for the recent launch of instant digital payment system ‘Raast’ and said financial inclusion for women in Pakistan was very low, calling for special focus. “If strategies do not match the ground realities, they will not be effective. The government needs to focus on the demand side for digital financial inclusion instead of the supply side. Pakistan will be successful when local shopkeepers ask for digital money instead of cash. Demands for digital financial inclusion should be created. Financial products should be produced in accordance with the needs and demands of the people and these should match with the targeted population. This will enhance outreach of the financial inclusion. Barriers, including technology and others, should be removed and access to the internet services should be increased. Provision of quality internet has become the basic human right. The government should focus on financial inclusion and digitalization as well, he added. Citing an example during the spread of Coronavirus pandemic in the world, Amin said digitalized courtiers had responded well, while Pakistan faced problems in delivery of assistance and cash to the people because of lack of digital payment system. “In our country, documentation of economy is confused with formalization because formalization means to bring into tax net and the informal business man becomes nervous when he hears about formalization. The government needs to create trust by first educating people about the benefits of documentation and then formalizing them, he concluded. Research studies also highlight that financial inclusion is positively and considerably associated with tax revenue, and access to financial services has sizeable effect on collection of taxes. Internet services core at digitalization Technological innovation ensures greater financial inclusion and more tax revenue, while an inefficient system leads to low levels of financial inclusion and low tax revenue. It is pertinent to mention that Finance Minister Shaukat Tarin has already directed all the stakeholders to identify gaps in the current e-payment systems on the basis of international best practices to help formulate a roadmap to develop a robust system for quick local and crossborder transactions. Pakistan has a very low level of financial inclusion due to a lack of proper indigenous digital payment system and low coverage of internet services in the country. Latest official figures suggest that Pakistan is amongst the less financially included countries. So far, it has only 103 million 3G/4G subscribers with 47 percent penetration rate. There is dire need to improve internet services, particularly coverage of 4G internet services, and ensure availability of cheap smart phones to facilitate financial inclusion. A recent survey by Karandaaz has found that due to utilization of mobile phone payment, financial inclusion in Pakistan increased from 21 to 25 percent from October 20 through December 30, 2020. Chinese experience sets a model If we take China’s example, financial inclusion has seen a massive boost with application of digital technologies, supporting policies of the government and the banking industry. Pakistan can learn from the Chinese experience of digital financial inclusion. Digital payment has greatly improved accessibility of financial inclusion in remote and rural areas. Because of massive digitalization in China, almost every payment is now being made online by using applications like WeChat, Alipay and others. Ubiquitous use of digital payment has converted China into a cashless society and brought a vital improvement in tax revenue. All Chinese banks have been equipped with modern technologies. The bank ATMs not only provide services for withdrawal of money, but these are being used to deposit money as well. The policies are helping in increasing financial inclusion. The State Bank of Pakistan should also direct the banking sector to upgrade their systems in accordance with the need-of-the-hour removing all barriers to facilitate financial inclusion.