P@SHA Calls for 10-Year Tax Exemption to Boost IT Exports
P@SHA Advocates for Extended FTR to Strengthen IT Industry
The Pakistan Software Houses Association (P@SHA) has urged the government to extend the Final Tax Regime (FTR) from 2025 to 2035 to encourage growth, attract foreign direct investment (FDI), and enhance IT and IT-enabled services (ITeS) exports. With Pakistan’s IT sector expanding rapidly and entering new regional markets, long-term tax incentives are critical for sustaining momentum.
The FTR currently allows registered IT companies to pay a reduced withholding tax rate of 0.25% on export proceeds, but this provision is set to expire on June 30, 2026. Industry leaders argue that a 10-year tax exemption is essential to provide policy continuity, enhance investor confidence, and help Pakistan emerge as a global technology hub.
Why P@SHA is Demanding a 10-Year Tax Exemption
Ensuring Stability and Predictability for Investors
P@SHA believes that long-term tax incentives will create a stable investment environment and prevent uncertainty in policy shifts that could deter investors. Predictability in taxation structures is crucial to attract both local and foreign capital into the IT sector.
Encouraging Digital Transformation and Economic Growth
Extending the Final Tax Regime (FTR) will accelerate digital transformation, stimulate business expansion, and enable IT firms to reinvest in technology upgrades. It will also reduce capital flight, ensuring that IT companies retain more revenue for reinvestment.
Aligning with Government’s Vision for IT Growth
The Pakistani government, through the Special Investment Facilitation Council (SIFC) and the Prime Minister’s IT policy, aims for exponential IT export growth. Extending the FTR aligns with this national vision by enhancing Pakistan’s competitiveness in the global IT market.
How FTR Extension Can Boost IT Export Growth
Simplifying Taxation for IT Firms
The IT industry operates in a highly dynamic and competitive global market. An extended FTR will simplify the tax regime, ensuring that IT firms benefit from reduced taxation and streamlined financial management.
Encouraging Reinvestment in the Sector
By allowing companies to retain more of their earnings, the FTR extension will enable firms to reinvest in innovation, talent development, and technological advancements. This will help Pakistani IT firms compete globally.
Enhancing Pakistan’s Global Competitiveness
Many of Pakistan’s competitors in the regional IT market, such as India and Bangladesh, offer long-term tax incentives to attract foreign investors. Without a competitive tax regime, Pakistan risks losing its position as a key player in IT and ITeS exports.
Boosting Employment and Reducing Brain Drain
A significant challenge for Pakistan’s IT industry is talent migration due to unbalanced taxation. Many skilled professionals move abroad due to high taxes on salaried IT employees (5%-35%), while freelancers and remote workers pay only 0.25%-1%.
Reducing the income tax burden on IT professionals will help retain talent and prevent a growing brain drain, ensuring that Pakistan’s skilled workforce contributes to domestic economic growth.
Addressing Tax Disparities in the IT Sector
Salaried IT Professionals vs. Remote Workers
P@SHA has highlighted concerns regarding unequal tax burdens within the IT sector. While salaried professionals are taxed at rates between 5% and 35%, freelancers and remote workers pay as low as 0.25% to 1%. This disparity pushes skilled IT employees to work remotely for foreign firms, creating talent shortages in local companies.
P@SHA has urged the government to introduce tax incentives for salaried IT professionals to ensure talent retention and prevent migration to other countries with lower tax burdens.
Foreign Exchange Repatriation: A Key Industry Demand
Challenges with Withholding Tax on Non-Residents
Currently, the Income Tax Ordinance (ITO), 2001 imposes a withholding tax (WHT) on payments made to non-residents for services rendered in Pakistan.
Key Issues with Withholding Tax:
- High Tax Rates: Royalties and fees for technical services paid to non-residents without a permanent establishment in Pakistan are taxed at 15%.
- Impact on Global IT Partnerships: These high rates discourage foreign companies from investing in Pakistan’s IT sector.
- Need for Double Taxation Agreements (DTAs): Many IT exporters struggle due to tax complications when dealing with foreign clients.
Encouraging IT Expansion in Emerging Markets
Pakistani IT firms are actively exploring high-potential markets such as Saudi Arabia, UAE, Qatar, and Singapore, where billions of dollars are being invested in AI, cybersecurity, robotics, and fintech.
The government must allocate funds to support Pakistani IT exporters in these emerging markets and enhance state-level trade relations through:
- The Ministry of Information Technology and Telecommunication (MoITT)
- The Pakistan Software Export Board (PSEB)
- Economic attachés and diplomatic missions
This will boost IT business growth, increasing export revenues and attracting FDI.
P@SHA’s Roadmap for IT Industry Growth
Key Recommendations from P@SHA:
- Extend FTR from 2025 to 2035 to ensure long-term policy stability.
- Reduce income tax for salaried IT professionals to retain talent.
- Simplify taxation for IT companies to promote business reinvestment.
- Address withholding tax issues for non-resident payments to encourage global partnerships.
- Support IT exporters exploring new markets through government initiatives and funding.
With these measures, Pakistan can position itself as a global IT leader, leveraging its skilled workforce, digital potential, and investment-friendly policies.
FAQs About IT Tax Exemptions and Export Growth
1. What is the Final Tax Regime (FTR) for IT exports?
The Final Tax Regime (FTR) allows IT firms to pay a reduced withholding tax of 0.25% on export proceeds, helping them retain more earnings for reinvestment.
2. Why is P@SHA advocating for an FTR extension?
P@SHA is pushing for an FTR extension until 2035 to ensure stability, investment growth, and global competitiveness in Pakistan’s IT industry.
3. How does withholding tax affect IT businesses?
High withholding taxes on non-resident payments discourage foreign partnerships and make it harder for Pakistani IT firms to compete internationally.
4. What are the tax challenges for salaried IT professionals?
Salaried IT employees pay 5%-35% in taxes, whereas remote workers and freelancers pay 0.25%-1%, creating a brain drain issue in the industry.
5. How can Pakistan increase its IT exports?
By extending tax incentives, simplifying financial regulations, and supporting IT exporters in emerging markets, Pakistan can significantly boost IT exports.
