The Pakistan Software Houses Association (P@SHA) has issued a strong appeal to the federal government, urging it to ensure policy stability and tax clarity for the country’s rapidly growing IT and IT-enabled Services (ITeS) sector in the upcoming Budget 2025–26. P@SHA warned that inconsistent policies and ad hoc taxation measures are actively undermining investor confidence and posing a significant threat to the industry’s future growth trajectory.
In a detailed statement, P@SHA highlighted the remarkable resilience and immense potential of the IT sector. The association noted that Pakistan’s IT exports reached an impressive $3.2 billion in FY2023–24 and are firmly on track to close the current fiscal year at nearly $4 billion. With appropriate and consistent government support, P@SHA believes the industry has the capacity to achieve an ambitious target of up to $15 billion in exports by 2030.
Despite this promising outlook, operational and regulatory uncertainties are causing considerable concern among both local and foreign investors. “We’re not asking for exemptions that could violate Pakistan’s commitments under the IMF program,” P@SHA clarified. “But if our fair and practical recommendations are implemented in both letter and spirit, the IT sector can deliver significantly more to national economic growth and job creation.”
Aligning Taxes for Remote Workers
One of P@SHA’s key demands focuses on the formal classification and appropriate taxation of remote workers under the Income Tax Ordinance, 2001. The association has specifically proposed that individuals earning more than PKR 2.5 million annually through foreign remittances or those working with fewer than three clients abroad should be taxed similarly to salaried employees.
P@SHA believes this move would help level the playing field between local IT companies and independent freelancers, while simultaneously broadening the country’s tax base. The current disparity, it argues, makes it financially cheaper for foreign firms to bypass local companies and directly hire Pakistani talent, which ultimately undermines the competitiveness of local firms and reduces national export revenue.
Consistency in Tax Laws Crucial for Sustained Growth
Characterizing the IT sector as “still in its formative stage,” P@SHA strongly stressed that policy predictability is absolutely essential to sustain its current growth momentum. The association cited the recent Digital Future for Developing Industries (DFDI) event, which generated over $700 million in investment pledges—with $600 million facilitated by P@SHA—as concrete proof of the sector’s potential when policy conditions are stable and clear.
Frequent and unpredictable tax changes, however, have significantly disrupted investor confidence and risk derailing the considerable progress already made by the government and various private sector stakeholders, including the Ministry of IT, Pakistan Software Export Board (PSEB), Special Investment Facilitation Council (SIFC), and Trade Development Authority of Pakistan (TDAP).
Operational Challenges Driving Firms Offshore
P@SHA also raised serious concerns about the operational difficulties faced by IT firms on the ground. These include reported harassment from federal and provincial agencies, such as the Employees’ Old-Age Benefits Institution (EOBI) and various tax departments. Arbitrary notices and the implicit threat of office closures are allegedly pushing many IT firms to consider relocating their operations abroad, leading to a potential brain drain and loss of business.
The association particularly highlighted the vulnerability of call centers and Business Process Outsourcing (BPO) firms, which operate on thin margins and adhere to strict service-level agreements. P@SHA has called for temporary exemptions from outdated labor regulations for these businesses until more comprehensive and long-term reforms can be introduced.
Urgent Need for Reforms to Secure Digital Future
With over 600,000 formal employees and some of the region’s highest input costs, Pakistan’s IT sector continues to demonstrate remarkable growth and resilience. However, P@SHA warns that this resilience has its limits. Without immediate fiscal reforms and stable, long-term policies, Pakistan risks losing its digital edge to more agile and supportive economies in the region.
“The choice is clear: either become a digital powerhouse or lose the industry’s momentum entirely,” the P@SHA statement concluded. “This is not a request for special treatment—it’s a strategic investment in Pakistan’s digital future and overall economic stability.”
