Social media firms are under fire globally, and Pakistan is no exception to that trend. Another version of rules to govern these firms has come to town. And it remains to be seen if it will stick around. The previous three versions, released over the past roughly two years, had courted controversy. While civil society had raised questions on legalese impacting freedom of speech, social media companies have raised alarm over provisions concerning liability, data localization, and local market incorporation.
Recall that earlier in March this year, the premier had constituted a high-level committee to swiftly resolve the impasse after consulting all stakeholders. Now, after many months of delay, finally the new social media – “Removal and Blocking of Unlawful Online Content (Procedure, Oversight and Safeguards) Rules, 2021” – have been reportedly notified. So, what is new in the latest version?
Notable among the major changes is the clear enunciation of how existing laws will be invoked in case there is content created or spread over social media platforms that falls foul of those laws. Another significant change is that the social media companies are no longer required to set up their offices in Pakistan within a set timeframe. The tech majors can establish a local office “as and when feasible”. However, social media companies are required to register with PTA within three months.
Similarly, the new rules have omitted previous requirement to establish database servers in Pakistan. In short, two among several contentious clauses in the eyes of social media firms – those pertaining to local incorporation and data localization – have been done away with. Will this placate the likes of Facebook, Twitter, and Google that has been protesting the social media rules under the banner of Asia Internet Coalition? The tech majors had, at one point, even warned they would stop servicing users in Pakistan if their concerns were not addressed.
While foreign investment and tech transfer are much-needed, it was never a good idea to use regulatory directives to force tech companies to have local presence. It sent a wrong message to foreign investors in other sectors, too. Now it is good to see coercive language removed. Social media firms can now choose to invest in local office(s) if they think it makes business sense. (Under the rules, they must appoint compliance and grievance officers within Pakistan anyway).
There are other, market-based mechanisms to attract foreign tech investment. For instance, there is a whole menu of fiscal incentives and investor facilitation framework being promised by the recently-established Special Technology Zones Authority (STZA). It is too early to tell if the STZA will take off as per its management expectations – its success will depend on attracting some of the big tech and social media firms, especially in areas of outsourcing, data centres, innovation labs, etc.
There is also this issue that technology firms pay little to no tax in developing country markets where they do not have physical presence but continue to generate considerable user-base and data. The taxation argument to force local incorporation may also grow weak with time, for it may soon become possible to tax social media firms without them having local presence. Last week, an OECD-led framework (endorsed by 136 countries and jurisdictions) spelled out rules to proportionally re-allocate global corporate income tax of major tech companies to countries based on business activities.
Tellingly, Pakistan (along with three other countries) did not endorse the OECD deal, which also forged a consensus on having a minimum corporate income tax rate of 15 percent. (For more on that, read: “No more tax havens?” published October 13, 2021). Global momentum is behind taxing tech giants. In this environment, Pakistan needs to ensure that a conducive environment is provided to tech companies to set up shop here. Whether the amended social media rules are helpful in that regard remains to be seen.
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