ISLAMABAD: The Pakistan Software Houses Association (P@SHA) has welcomed several incentives announced in the Federal Budget 2026-27 for the information technology sector, while highlighting key structural challenges that continue to hinder the industry’s long-term growth.
In its latest position paper on the federal budget, P@SHA praised the government’s decision to extend the concessional 0.25 percent tax rate on IT exports until Tax Year 2029, describing the move as an important step toward providing policy stability and encouraging export growth.
The association also welcomed the reduction in advance tax on foreign card transactions from 5 percent to 0.5 percent, saying the measure would benefit freelancers, software exporters, and IT professionals who regularly make international payments.
IT Sector Receives Multiple Tax Incentives
According to P@SHA, the budget includes several positive measures aimed at supporting Pakistan’s growing technology sector. These include withholding tax exemptions for startups, tax relief for salaried IT professionals, and a reduction in the impact of Super Tax on technology companies.
The association noted that raising the Super Tax exemption threshold from Rs. 150 million to Rs. 500 million would effectively remove the majority of IT companies from the tax bracket, providing significant financial relief.
P@SHA also appreciated the government’s commitment to digital skills development, highlighting allocations exceeding Rs. 10 billion for technology-focused training initiatives, including the Prime Minister’s Youth Skills Development Program and AI Seekho 2026.
Concerns Over Freelancers, Remote Workers and Investment Framework
Despite welcoming the incentives, P@SHA warned that several longstanding issues remain unresolved.
The association emphasized the absence of a clear legal definition for freelancers and remote workers serving international clients. It argued that the lack of legal recognition creates uncertainty and could affect talent retention in Pakistan’s rapidly growing digital economy.
P@SHA also pointed to the absence of a comprehensive legal and financial framework for venture capital and private equity investments, saying the gap continues to limit investment inflows into the country’s startup ecosystem.
Another concern raised by the association was the continuation of the Rs. 100 million turnover threshold under Clause 43F, which industry stakeholders believe may restrict growth opportunities for certain businesses.
New Compliance Requirements Introduced
The budget also introduces several new compliance measures affecting digital businesses and content creators.
These include a 5 percent withholding tax on social media earnings, mandatory digital financial statements, stricter penalties for violations related to e-invoicing requirements, and increased fines for late tax return filings.
P@SHA urged policymakers to establish a permanent legal framework for the 0.25 percent IT export tax regime, formally recognize freelancers and remote workers in tax laws, and develop a structured venture capital framework to attract domestic and foreign investment.
The association estimated that Pakistan’s IT exports could increase from approximately $3.2 billion in FY2024 to $4.5 billion by FY2026. However, it cautioned that achieving the country’s ambitious target of $15 billion in IT exports by 2030 will require comprehensive reforms and the removal of key structural barriers.
