“Disruptive innovation can hurt, if you are not the one doing the disrupting.” – Clay Christensen
“The first step toward getting somewhere is to decide that you are not going to stay where you are.” – J. P. Morgan
As someone who has spent a career learning about transformation of financial services, I am excited about the enormous potential of ‘fintechs’ in Pakistan. It's rewarding to see the country’s continuous progress in the financial sector over the past several years. I believe that Pakistan has a real opportunity to lead the way in evolving its financial systems and in the process creating a more prosperous future for its citizens.
One of the less talked-about aspects of this evolution is taxation. It might not be the most exciting topic. But it's one that's critical to the health of our economy and the wellbeing of our society. Inevitably, when we think of taxes, we usually think of one thing: pain. But automation, digitalization and emerging tax filing apps have become important tools for promoting efficient and equitable tax collection, particularly in Pakistan, where the tax base is narrow and compliance rates are low. It's not just a Pakistani problem – many countries face similar challenges when it comes to getting people to pay their fair share. Today, the number of individual tax filers in Pakistan is less than 4 million, far too small for a country with a population of more than 230 million!
Pakistan is an emerging market with a large, young and rapidly growing population and a strategic location that serves as a gateway to Central Asia, the Middle East, and South Asia. However, the country faces a number of challenges: in addition to its small taxpayer pool, it has a vast unbanked population and a very large informal undocumented economy.
First and foremost, it's clear that Pakistan needs to improve access to financial services. With nearly 100 million people lacking proper access to formal financial services, there is a huge untapped market waiting to be served. This is where innovative solutions like mobile and digital banking have made a real difference. I am pleased to see that Pakistan is becoming something of a success story in this area.
In addition to improving access, Pakistan also needs to focus on increasing financial literacy. It's not enough to simply provide access to financial services – people need to understand how to use them effectively. This means investing in education and creating programs that teach people about financial management, investment, and entrepreneurship.
Of course, it's not just about improving access and education – Pakistan also needs to create a regulatory environment that fosters innovation and entrepreneurship. This means removing barriers to entry, encouraging competition, and providing a level playing field for all players in the financial services industry. By doing so, Pakistan can attract investment and talent, and position itself as a leader in this field.
Multiple institutional reforms and concerted action in various domains, led by the Federal Board of Revenue (FBR) itself, have laid a decent foundation for a better tax culture in the country. Improved tax collection and reduced corruption is being realized through reforms in tax administration, supported by investments in digital infrastructure and related compliance mechanisms. A lot more needs to be done.
The private sector is also playing its part, and I’m happy to report that over the last couple of years, I’ve been associated with one of the innovative companies working to simplify and digitalize tax return filing. It’s an important consideration for everyday consumers - tax-filing apps can actually make the process of filing returns a lot less painful. I would go as far as to say that they are a game-changer, and they're transforming the way generations of Pakistanis will think about taxes. And recently, FBR has been looking to allow third party service providers to integrate with their own digital infrastructure, potentially increasing the FBR's processing capacity to handle larger volumes of tax returns.
Tax filing apps are a testament to the benefits of technology in driving positive change and growth in society. They are collaboratively developed by tax and technology experts, with the potential to expand the tax base by making the whole process more accessible and user-friendly for all.
By using these apps, even individuals with limited knowledge of tax laws can prepare and submit accurate tax returns, ensuring compliance with tax laws and regulations while avoiding penalties and fines.
But perhaps the biggest advantage of tax-filing apps is that they increase tax compliance. By making tax preparation and filing more accessible and user-friendly, tax filing apps can help incentivize people to file their taxes properly and thus facilitate tax compliance in the country. There are already visible signs of improved governance in the taxation space. We can look forward to better social outcomes and improved economic growth, and that's good news for everyone - because broader tax participation will lead to greater investment in things like infrastructure, education, and healthcare. In Pakistan, two examples of automated tax filing apps are Apna Tax and BeFiler. I encourage everyone to give them a try.
But while the potential of these apps is immense, it's critical that the relevant tax authorities expedite their automated interface with these apps. This interface has already been developed and tested in a sandbox environment two years ago, but is yet to be made operational. And on a more macro level, I would like to thank our policymakers – who have achieved so much progress in the way of infrastructure development – but also encourage them to look at reforms and best practices to be adopted in the regulatory framework. Moving the needle past that paltry level of four million filers must be our primary focus – public and private sector alike. Automated tax filing apps are a win-win for everyone involved, but they’re just the beginning. Overall, I'm optimistic about Pakistan's future in the financial services sector, and I feel we are very close to seeing a fundamental shift in the country’s tax culture. By focusing on access, education, regulation, and innovation, we can create a more inclusive and prosperous financial system that benefits everyone. I look forward to seeing what we will achieve in the years to come.