Intellectual property

01 Nov 2006


Overview of e-commerce in Pakistan

FROM THE ECONOMIST INTELLIGENCE UNIT

When the government started an information-technology (IT) and e-commerce initiative in early 2000, the banks were expected to lead the way into e-commerce. However, although the banking sector is the leading spender on information communications technology, the most progress in e-commerce has been in “e-government”. Some business-to-business (B2B) portals are available, but they are designed more for information than transactions.

Half of the country’s 7,000 commercial-bank branches, including 90% of the branches in urban areas, had been computerised by August 2006. Many banks and exchange companies offer online funds transfers from overseas, such as for workers remittances. A few of banks offer mobile-phone banking, where customers can pay utility bills using their mobile phones. The National Institutional Facilitation Technologies (NIFT), an automated check-clearing house, was operating in 14 cities in August 2006, and it processed 60m checks per year in 2005/06. NIFT is a public-private company owned 51% by banks.

Internet merchant accounts (used for processing financial transactions of Internet vendors) were permitted by the State Bank of Pakistan (the central bank) in February 2001. However, inadequate infrastructure and security concerns remain, and in mid-2006 only Citibank (US) offered these accounts, which were used by airlines, mobile companies, Internet service providers and merchants. The transactions that do occur use international credit cards, which are processed outside Pakistan. Users of Internet merchant accounts undertaking transactions outside Pakistan need to submit electronic forms for transactions valued at US$500 or more to their banks, which must then submit the same in consolidated form on a monthly basis to the central bank.

In December 2005 the Central Board of Revenue, the tax authority, started allowing electronic filing of sales tax and federal excise returns by registered private and public companies. At that time, it said that it expected about 1,500 large taxpayers out of 22,000 to use the facility. Government efforts to promote the IT sector include the establishment of the Information Technology and Telecommunications Division in July 2000, various incentives, and the commitment of resources for education and infrastructure building. The Ministry of Science and Technology launched the National Information Technology Policy in August 2000. It was developed by a team that included working groups on the following: human-resource development; IT in government and databases; IT market development and support; IT fiscal issues; telecoms, convergence and deregulation; cyberlaw, legislation and intellectual-property rights; IT research and development; Internet development; software export; e-commerce; and incentives for IT investment.

Total spending (by the government and private sector) on information, communications and technology in Pakistan was US$10bn during 2005/06. Various e-commerce projects and initiatives were underway in the public and private sectors in August 2006. The government said in May 2004 that it has planned new IT and e-commerce projects worth well over PRs4.5bn up to 2007, and by then it aims to produce 100,000 graduates a year in IT studies from the seven new IT universities it has already set up.

Pakistan is part of the 15-member Asia Pacific Council for the Facilitation of Procedures and Practices for Administration, Commerce and Transport. The council aims to support the United Nations Centre for the Facilitation of Procedures and Practices for Administration, Commerce and Transport. Pakistan is a member of the Asia Pacific Council for Trade Facilitation and Electronic Business, a non-governmental organisation that promotes trade facilitation, electronic business policies and activities in the Asia–Pacific region.

E-commerce: Growth of e-commerce

Pakistan has a number of barriers to electronic commerce, including inadequate infrastructure (insufficient telephone lines and frequent power failures); relatively few Internet users; and lack of security for online transactions. The government is working to overcome these problems and has made some progress.

The number of Internet users in Pakistan is growing fast. According to the government’s economic survey for 2005/06, there were an estimated 2.1m Internet subscribers and about 10m Internet users in June 2005 (latest figures available), and Internet access had expanded from 29 cities in August 2000 to 2,339 cities and towns by June 2006. Optical-fibre networks were available in 500 cities in June 2006, compared with 53 cities in August 2000. Pakistan had 170 Internet service providers in June 2006.

The Sustainable Development Networking Programme (SDNP), funded by the UNDP, started providing e-mail services and then Internet connectivity beginning in 1993. This remained the country’s largest network until 1996. The government began allowing private Internet service providers (ISPs) in 1995. Paknet, a fully owned subsidiary of Pakistan Telecommunication Company, the formerly government-owned telcoms firm, began offering ISP services in 1999. Paknet is Pakistan’s largest ISP, followed by cyber.net, part of the local Lakson Group. Other leading ISPs include Comsats, Brainnet, Fascom, Supernet, Worldtel (an affiliate of Worldtel Canada) and NetSolConnect (owned by NetSol Technologies of the US and the Akhter group of the UK).

Telecoms deregulation has resulted in an increase in the country’s teledensity, especially in mobile telephony. Landline teledensity (the number of landline phone connections per 100 persons) was 3.9% in June 2006, compared with 3.6% the previous year; whereas cellular density (the number of cellular connections per 100 persons) was a substantial 21%, up from just 7%, over the same period. These improvements should help spur the use of the Internet and e-commerce.

During August 2006 various e-commerce projects and initiatives were underway in the public and private sectors, including electronic-government projects worth US$300m at the federal and provincial level. For example, a five-year, US$30m project funded by World Bank at the State Bank of Pakistan (the central bank) to interlink the countrywide regional office network of the central bank was almost complete. A real-time gross settlements (RTGS) project with backward linkages to commercial banks and the clearing house is scheduled to be completed by end-2006.

The Pakistan Software Export Board (PSEB) has a number of programmes to activate the local information-technology (IT) sector. For example, the Bridge 2002 programme seeks to computerise small and medium-sized enterprises and to provide projects to local software companies, with technical and financial assistance from the board. Another programme, the GEMS-2002, was launched in August 2002 to incubate small software companies, providing logistics support, infrastructure, and marketing and financial guidance. The PSEB also provides financial subsidies and technical support for various training programmes and for securing internationally-recognised quality certifications.

Software-technology parks have been established to develop the IT industry in Lahore, Karachi and Islamabad. But a software-technology park set up in Peshawar in June 2004 was abandoned because of lack of funds and poor infrastructure. Other IT incentives include the following:

* IT companies qualify for an income tax exemption on software-export revenues until June 30th 2016.
* Software exporters may retain 35% of their earnings in foreign-exchange accounts.
* Computers and related hardware are exempt from customs duties, though the 2006/07 budget subjected them to a 15% sales tax.
* Depreciation on computer equipment was raised to 30% (from 10%) in the 2001/02 budget.
* Financing options provided by banks and development finance institutions for IT-sector contracts are acceptable as collateral for the export-finance facility.
* Accreditation and Quality Testing Councils are being set up to ensure a high standard of IT education in the public and private sector.

E-commerce: Foreign investment

Foreign investment of 100% is permitted in the telecommunications sector. About 100 IT and telecoms companies from the United States, Europe and Japan have offices in Pakistan, including Oracle, Cisco Systems, International Business Machines, Microsoft and Intel. Two leading ISPs have foreign connections: Worldtel is an affiliate of Worldtel Canada and NetSolConnect is owned by NetSol Technologies of the US and the Akhter group of the UK.

Foreign investors are allowed to invest up to 100% in software companies, and foreign interest in Pakistan’s technology sector has been increasing. Local entrepreneurs have set up around 100 call centres in recent years in Pakistan; one of the first was a call-centre that Align Technologies (US) set up in 2000.

The United Nations Industrial Development Organisation and the World Bank also support projects for information-technology development.

E-commerce: Intellectual property

There was a flurry of legislative activity concerning protection of intellectual property in 2000/01. The Pakistan Patent Ordinance 2000 was issued in December 2000 and the Trademarks Ordinance 2001 was issued in April 2001, and they can be applied to Internet activity.

According to an August 2006 report from the government, the Electronic Data Protection Act 2005, the revised Electronic Crimes Act 2004 and a law relating to electronic payments had been drafted and were ready for legislation, although there is no schedule to present them. The Electronic Data Protection Act would provide protection and safety to foreign data regarding the processing of such data in Pakistan; details for the other two acts were not yet available by August 2006.