The growing interaction of technology and business has produced new types of business models.

Within e-commerce business structures a new model of the sharing economy (also called the gig economy) has developed where online businesses provide a platform for buyers and suppliers of traditional goods and services.

These platforms are designed to maximise economic efficiencies — the owner agrees to share the use of the asset (car, building etc) with another person at a price. The unused assets, brought to the market, enable consumers to meet their requirements at competitive prices.

In Pakistan, the emergence of these new business models and their local versions has created a new market for consumers. There are three indisputable factors deriving high-growth for sharing economy businesses: a growing tech-savvy population, lower assets ownership ratio (cars, houses etc.) and poor quality of existing transport, hospitality, food etc. distribution systems.

Within e-commerce business structures, a new model of the sharing economy has developed

With 220m plus individuals and half of them having a mobile phone connection, the future looks bright for sharing economy businesses. Similarly, with lower car ownership ratio (18 out 1,000 persons own cars in Pakistan) and poor public transportation system, the business growth of ride-sharing applications like Careem can be easily understood.

However, these new business models have their own legal, infrastructural and human resource challenges apart from taxation issues.

The first challenge is the absence of legal cover for their services. The existing transport regulatory framework lacks provisions for covering ride-sharing mobile applications. Similarly, the existing hotel or hospitality industry related laws do not meet the requirements of room-sharing applications.

The second challenge for sharing economy platforms is the lack of tech-infrastructural facilities in the country. The basic infrastructure required for the execution of online services like high speed internet, wide-coverage of mobile networks, competitive internet-data packages, and an educated population are available in large cities only. The vast semi-urban rural belt is still awaiting the coverage of 3G enabled mobile phone services.

The third challenge is the short-supply of trained manpower to meet the requirements of sharing economy business models. The quality of labour available for ride-sharing businesses (drivers etc.) is poor as a large majority of them is illiterate and do not possess a driving license.

In addition to this, the back-end operations managers are also not trained due to the poor I.T education. The existing employment laws have also been designed for traditional business models with no adequate coverage of the temporary job nature of sharing economy workers.

The fourth challenge is the difficulty in the applicability of taxation rules on the services rendered by the sharing economy business models. The existing tax regulations need to include services provided by sharing economy businesses for sales, excise and income tax purposes.

Similarly, the levy of service tax on sharing economy businesses will also affect their ability to charge dynamic pricing from their consumers. The Federal Board of Revenue (FBR) in its up-coming budget needs to incorporate taxation provisions related to online sharing business models.

The fifth challenge is ensuring the safety and security of consumers using mobile applications for transportation, hospitality etc services. The general cultural features associated with gender and racial discrimination present in the society need to be properly addressed.

Overall, the emergence of sharing economy businesses presents a wonderful opportunity to businesses and policymakers to create an economy full of choices for consumers to meet their needs.

Published in Dawn, Economic & Business, April 10th, 2017