SBP estimates ICT exports worth $1.5bn remain undocumented

KARACHI: State Bank of Pakistan (SBP) has estimated that around $1.5 billion exports in Information and Communications Technologies (ICT) are remained undocumented due to absence of major world’s leading payment solution provider and preference of cost saving.

 

 

The SBP in a report pointed out that the total size of Pakistan’s ICT exports at around $2.5 billion.

“Of these exports, registered firms using formal banking channels to collect export receipts account for around $1 billion. However, roughly $1 billion is attributed to SME exports in the grey market, and the remaining $0.5 billion is accounted for by freelancers in the IT and IT-enabled services (ITES) space that serve international clients.”

While 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 central bank said.

First, 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.

This is important because: (i) foreign employers generally make their transactions through PayPal, rendering it undesirable for them to concurrently use the alternative platforms; (ii) PayPal gives an additional payment reversal/dispute resolution facility to the employers, which helps in increasing the level of trust between the transacting parties; and (iii) domestic freelancers or the exporters of digital content have to pay extra to settle their transactions via alternative channels (e.g. Payoneer and Skrill).

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, the SBP said.

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).

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

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