OPINION
Ammar H. Khan
Crushing the knowledge economy
economy, but not a myopic one, which exists to meet just the next taxation target. GSM Association (GSMA) estimates that every 10 percent increase in digitization yields an increase in labor productivity by 2.62 percent, and total factor productivity by 2.28 percent – critical factors which feed into overall GDP growth. Similarly, access to affordable broadband can trigger a snowball effect where every Individual can become an export machine without any atrocious or distortionary direct or indirect state subsidies. The gross incidence of tax on broadband internet in Pakistan is in excess of 20 percent. The lowest end mobile devices have the highest tax incidence as well. Recently, there have been talks of imposing additional taxes on laptops -- making them much more expensive than the ou are probably reading this on a screen of some type. If region, or even when compared to other developed economies. by some miracle you are reading this on newsprint, it will In-effect, instead of expanding the pie, the policy makers are not be long before your eyes find themselves focused on a grabbing the low-hanging fruit hindering the growth of the knowledge screen again. That is to say, the accessibility to technology economy just to meet their next taxation target. A digital device is a and connectivity because of the internet has never been critical tool for the modern economy, if our policy makers can dole out greater, which gives rise to new kinds of economic opportunities. close-to-free cash in the form of subsidized loans for industries which Never has there been a better time to work from anywhere in the belong to the last century, maybe the least that they can do is not to kill world, and earn in currency of choice as long as you have a broadband growth of industries which will shape the future. Policy formulation is connection, and a digital device. Learning has been democratized, a a function of elite capture here. Selected few sectors belonging to the old multitude of resources are freely available to learn anything. From the economy keep getting concessions, subsidies, and cheap loans without Classics, to the latest in technology, the information is all there — the any impact assessment, or evaluation. Meanwhile, access to the knowlonly thing required is the will to learn and an affordable broadband edge economy is made more inaccessible, more unaffordable. connection. It is no surprise that most technology companies that operate out A digital device, whether that be a laptop, or a mobile device of Pakistan keep their cash offshore and not reinvest in the country, and is not a luxury anymore. It is a necessity. It is not solely a consumer neither do they recognize most revenue in Pakistan -- lest some policy good, but it is also a capital good, which catalyzes economic activity. maker starts salivating and imposes an irrational tax to kill the industry. The new economy rewards knowledge, the marginal cost of acquisiThe country needs an accelerated national broadband and digital tion of which is close to zero now. It doesn't matter what your pediaccess plan, which actually puts devices in the hands of people with high gree is, or where you went to school. If you have the right skillset, you speed data, and is not an elaborate real estate scheme. Pakistan currently can earn thousands of dollars without leaving your village, or your city. has a smartphone penetration of 53 percent which is constrained by the Millions of sellers exist online, without any brick and mortar sales affordability factor, as due to a mix of taxes, duties, and PKR depreciapresence, exclusively relying on e-commerce, thereby increasing comtion, total cost of ownership of a smartphone has increased over the last petition and expanding the choice set for consumers. As competition few years. Increase in penetration can only be done by making devices increases, so does innovation, and the overall economic pie expands. more affordable, and that cannot be done through imposition of regresA forward-looking policy would double down on the digital sive taxation measures. Similarly, quantum of digital payments processed in Pakistan is minuscule when compared to peers largely due to absence of an operational and affordable digital payments infrastructure. A multi-pronged strategy is required which targets reduction in total cost of ownership of a digital The writer is the chief device, and that cannot be done with imposition of arbitrary taxes and duties. Efforts need to be made risk officer for Karandaaz to make it easier for individual entrepreneurs and small businesses to excel, whether it be through easier Pakistan, an organisation access through banking channels, or through payment systems. The mindset shift needs to move from the that seeks to promote tangible to the intangible. financial inclusion in Software will eat the world, and that is already happening. As an example, India exports more Pakistan. He has previously software than Saudi Arabia exports oil. Alternatively, China imports more microchips than it imports oil. worked at several financial The world is pivoting towards the intangible and it is doing that at a breakneck speed. We can either deinstitutions in Pakistan, velop our capacity accordingly like our peers have done, or we can continue celebrating low-value added, both in commercial banking highly subsidized, and distortionary exports. and capital markets
It has never been easier to learn in all of history. Why are we trying to make it less affordable?
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