By: A.R Manj
As the global financial ecosystem rapidly evolves with digital currencies, mobile banking, and fintech innovations, countries like Pakistan are navigating uncharted territory in their quest to modernise financial systems. With a vast informal economy and heavy reliance on cash, Pakistan’s push toward digitalisation is both a bold vision and a formidable challenge.
This review explores Pakistan’s efforts to digitise its economy—particularly through digital currency adoption and policies discouraging cash-based transactions—and evaluates the benefits, obstacles, and the road ahead.
The Case for Digitalisation
At the heart of Pakistan’s digital transition is the goal of financial inclusion—bringing millions of unbanked individuals, especially in rural and underserved communities, into the formal financial fold. With an estimated 30–40% of the GDP operating in the informal sector and nearly 80–90% of transactions still conducted in cash, the scale of transformation needed is immense.
Digital financial services like mobile wallets, e-banking, and instant payment platforms offer a promising alternative. They reduce transaction costs, limit physical infrastructure needs, and provide safe, traceable payment options. For a country grappling with low tax revenues, undocumented wealth, and financial crimes, the appeal is clear: more transparency, improved tax compliance, and a more accountable economy.
Key Initiatives: Vision Meets Implementation
The government and the State Bank of Pakistan (SBP) have launched several ambitious programmes under the “Digital Pakistan” vision.
- Raast Instant Payment System (2021): Pakistan’s first instant digital payment platform has already processed over 200 million transactions. With support for person-to-person (P2P), person-to-business (P2B), and government-to-person (G2P) payments, Raast is central to driving adoption in daily financial interactions.
- Electronic Money Institutions (EMIs): Regulations introduced in 2019 opened the door for fintech players like JazzCash and Easypaisa to expand access, particularly in remote areas.
- Interoperability and Open Banking: Through the National Payment Systems Strategy (NPSS), Pakistan aims to make digital transactions seamless across banks, fintechs, and other payment platforms. The Open Banking Framework is a critical step toward fostering innovation and competition.
These policy foundations are designed not just to modernise the financial landscape but also to change long-standing habits in how Pakistanis interact with money.
Regulations to Deter Cash Dependence
To limit cash transactions and encourage digital alternatives, tax and legal frameworks have been strategically updated:
- Section 21(l) of the Income Tax Ordinance (2001): Disallows business expense deductions over PKR 250,000 if paid in cash.
- Withholding Tax on Cash Withdrawals: A 0.6% tax on withdrawals exceeding Rs50,000/day (Section 231A) nudges individuals and businesses toward digital channels.
- POS Integration Rules (2021): Large retailers are required to link POS systems with the FBR for real-time monitoring.
- Tax Incentives for Digital Payments: Merchants accepting digital payments are offered reduced tax rates, providing a direct incentive to move away from cash.
Together, these measures represent a comprehensive attempt to modernise tax compliance, reduce informal transactions, and promote documented economic activity.
The Roadblocks: Digital Divide and Institutional Readiness
Despite the progress, the journey toward a cash-light, digital-first economy faces significant hurdles:
- Digital Infrastructure Gaps: Many rural and remote regions still lack reliable internet, smartphone access, or fintech service penetration.
- Financial and Digital Literacy: Low awareness and comfort with digital tools limit adoption, especially among older, less educated, or female populations.
- Cybersecurity Concerns: With increasing reliance on digital platforms, data security, fraud prevention, and regulatory enforcement need to be scaled up in tandem.
- Institutional Coordination: Fragmented implementation, lack of inter-agency collaboration, and inadequate public outreach can stall even well-intentioned reforms.
Pakistan’s journey is further complicated by cultural and behavioural inertia. Cash offers immediacy, anonymity, and flexibility—traits deeply embedded in daily life.
A Comparative Glance: Learning from Global Examples
Pakistan can take cues from successful models like India’s UPI (Unified Payments Interface), which revolutionised digital payments through interoperability, low-cost access, and extensive outreach. Similarly, platforms in Kenya and Bangladesh have shown how mobile financial services can flourish when paired with inclusive policies and strong regulatory frameworks.
Conclusion: Cautious Optimism
The digitalisation of Pakistan’s financial system holds immense transformative potential, from expanding financial inclusion to curbing black money and improving governance. Raast, EMI regulations, and tax disincentives for cash use are strong steps in the right direction.
However, for these initiatives to yield lasting impact, robust implementation, institutional cohesion, and investment in digital infrastructure and education are imperative. Without these, digitalisation may remain a fragmented effort, benefiting a few while leaving many behind.
Pakistan’s digital financial future is promising, but it requires a careful balancing act—between innovation and regulation, inclusion and enforcement. Done right, it could reshape the country’s economic trajectory for the better.
