The Pakistan Software Houses Association (P@SHA) is urging the government to reinstate a 10-year tax exemption under the Final Tax Regime (FTR) for Information Technology (IT) and IT-enabled Services (ITeS) exports. This initiative is aimed at fostering a stable and predictable environment for the rapidly expanding IT sector, crucial for attracting investment and sustaining growth.
Current Scenario and P@SHA’s Proposal:
Currently, the FTR provides a reduced withholding tax rate of 0.25% on export proceeds for Pakistan Software Export Board (PSEB) registered entities, valid until June 30, 2026.1 P@SHA argues that extending this exemption for a decade would provide the necessary stability to encourage long-term investments and solidify Pakistan’s position as a leading IT hub.
Benefits of a Decade-Long Exemption:
- Predictability and Investor Confidence: A 10-year exemption would ensure policy consistency, attracting both local and foreign investments.
- Export Growth and Competitiveness: It would maintain the competitiveness of Pakistan’s IT industry on the global stage, allowing for sustained export growth.
- Digital Transformation: It would accelerate digital transformation within the country, aligning with the objectives of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision.
- Simplified Tax Structure: The continuation of the FTR would simplify tax structures for IT firms, encouraging reinvestment and innovation.
- Talent Retention: By providing long-term tax incentives, the industry can better retain skilled professionals, reducing talent migration.
Addressing Taxation Disparities:
P@SHA Chairman Sajjad Mustafa Syed highlighted the existing taxation disparities, where salaried employees face significantly higher income tax rates compared to remote IT workers.2 He urged the government to lower income tax rates for salaried IT employees to create a more equitable environment.
Facilitating Foreign Exchange Repatriation:
P@SHA also emphasized the need to facilitate foreign exchange repatriation. They propose reviewing the current Income Tax Ordinance (ITO), 2001, which imposes withholding tax on payments to non-residents for services rendered in Pakistan.3
Government Support for Market Expansion:
Saad Shah, CEO of Hexalyze, advocated for budgetary support for IT-exporting companies seeking to expand into emerging markets like Saudi Arabia, the UAE, Qatar, and Singapore. He stressed the importance of enhanced trade relations through the Ministry of Information Technology and Telecommunication (MoITT), the Pakistan Software Export Board, and diplomatic missions.
P@SHA’s recommendations aim to create a conducive environment for the IT industry to thrive, contribute to economic growth, and position Pakistan as a leading player in the global IT landscape. The proposed 10-year tax exemption, along with addressing taxation disparities and facilitating market expansion, would be instrumental in achieving these objectives.
