Daily The Business

Pakistan IT goods’ informal exports touch to record $1.5b: SBP

Absence of PayPal like service, lack of awareness, impeding SBP’s Form ‘R’ tax authorities

M J Hayat

LAHORE: Pakistan’s Information and communication technology (ICT) goods informal exports have touched to record $1.5 billion due to the non-availability of formal payment channels especial the absence of PayPal, lack of awareness about the proper export procedures, deliberate avoidance of hassle of filling out SBP’s Form ‘R’ and tax authorities, State Bank of Pakistan in a recent report on economy indicated.

The ICT goods exports include computers and peripheral equipment, communication equipment, consumer electronic equipment, electronic components, and other information and technology goods miscellaneous.

The report said that informal exports are probably higher than formal
exports as estimates by industry experts who place the total size of
Pakistan’s ICT exports at around US$ 2.5 billion. Of these exports,
the registered firms using formal banking channels to collect export
receipts account for around US$ 1 billion. However, roughly US$ 1
billion is attributed to SME exports in the grey market, and the
remaining US$ 0.5 billion is accounted for by freelancers in the IT
and IT-enabled services (ITES) space that serve international clients,
the central bank report added.

On the other hand, the major stakeholders – including Pakistan
Software Export Board (PSEB), associations, and industry analysts –
provide different estimated figures pertaining to the undocumented
exports, a common narrative prevails when it comes to reasons behind
the under-representation of receipts in the official statistics, the
report said, adding that firstly, the absence of PayPal – the most
widely used payment method across the globe, and which both employers
and freelancers consider relatively more convenient, cheap and safe –
is a major concern. Therefore, a number of ICT and business process
outsourcing (BPO) firms prefer to receive their revenues using money
transfer organizations like Western Union, with some even preferring
to have their revenues deposited in banks outside Pakistan to avoid
the associated transfer costs. In the case of former, the export
receipts reflect as workers’ remittances, whereas in case of latter,
these earnings remain unrecorded altogether. Second, anecdotal
evidence also suggests that some firms and individuals themselves
bypass proper documentation in order to either stay under the radar of
tax authorities, or avoid the hassle of filling out SBP’s Form ‘R’
(considered both cumbersome and redundant), the report highlighted.

Furthermore, most firms simply opt out of negligence and lack of
awareness about the proper export procedures, it said.

Pakistan is figuring prominently in other BPO segments as well BPO is
a cost-saving measure to outsource processes that are not the core
business of an entity but are nonetheless essential for a company to
operate, the report underscored.

Fundamentally, this involves delegating specific business tasks such
as customer relationship management, data entry, bookkeeping, human
resource management, payroll processing, and marketing, etc. to a
third-party service provider (TPSP), usually situated outside the
firm’s country of operation, it stated.

“Globally, the BPO industry has witnessed a period of robust growth
post 2002 and, according to industry experts, has expanded into a US$
180 billion industry. It is expected that this market will grow
further to US$ 250 billion by 2020, as remote work gets increasingly
popular around the world, especially via freelancing websites (such as
Upwork and Fiverr),” the report disclosed, adding that Pakistan was
home to the third largest population of professionals related to
global online gig industry after India and Bangladesh, as per the
ranking available at end September 2018.

Improved internet access to more than 2,000 cities across Pakistan; a
large number of graduates entering the workforce; and government
efforts to promote freelancing are the key factors behind this
growth,the report explained.

According to the A.T. Kearney Global Services location index of 2017,
Pakistan is the 10th most attractive destination among Asian
countries, and 30th in the world, for offshore services, the report
pointed out, explaining Pakistan’s score was most encouraging in
financial attractiveness: 3 rd largest among Asians after Sri Lanka
and Egypt amongst the 55-country index. This is representative of the
relatively favorable wage rates in Pakistan compared those in more
established destinations such as India and China. However, when it
comes to cross-country comparison of other off-shoring fundamentals
(quality of human resource and overall business environment), Pakistan
lags behind its regional competitors, the report highlighted.

Indeed, despite the fact that the country was able to increase its
ICT revenues, it has fallen two points in the rankings compared to
last year. In particular, the low ranking in the ‘people skills and
availability’ category is a big concern, the report showed concern.

It is pertinent to note that Pakistan has an abundant supply of young
and English-speaking population who can potentially assume the nature
of the jobs that BPO has to offer. However, since the industry is
relatively new to the country, it is still not being pursued as a
long-term career; the more qualified employees tend to upgrade their
careers and move into software development, quitting the BPO industry
after a very short span of time, the bank said.

As for the new entrants, the lack of technical and professional
capacities works as a major growth barrier, making it hard for the BPO
industry to compete in the international market.

Going forward, focusing on skill building and improvement of payments
infrastructure would be the key, the report concluded.

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