BudgetFY26: P@SHA calls for 10-year extension of concessional tax regime to help boost IT exports

The Pakistan Software Houses Association (P@SHA) has proposed the government to extend the period of final tax regime (FTR) – concessional withholding tax on information technology (IT) and software export earnings – for a period of 10 year to boost the exports and investment in the industry.

The final tax regime, which is collected on export of IT and IT-enabled services (ITeS), is otherwise set to expire at the end of the next fiscal year (FY26) on June 30, 2026, according to P@SHA - a collective voice of IT industry in the country.

The FTR allows for a reduced withholding tax rate of 0.25% on export proceeds for the entities registered with the Pakistan Software Export Board (PSEB) until the specified date.

“The continuation of FTR is imperative for sustaining the momentum of export growth and investments in the IT industry,” P@SHA Chairman Sajjad Mustafa Syed said in a press statement.

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He was of the view that the tax regime should be extended till 2035 to ensure predictability, continuity and boost investor confidence.

“IT industry is attracting major investments, witnessing operational expansions and achieving regional diversification in the export markets,” he said.

A 10-year tax exemption would accelerate digital transformation, boost investor confidence and position Pakistan as a leading IT hub “in line with objectives of the Special Investment Facilitation Council (SIFC) and Prime Minister’s vision of exponential export growth in the IT industry,” Sajjad Mustafa Syed added.

P@SHA submitted its detailed budgetary proposals for the next federal budget 2025–26 and other critical policy recommendations to the relevant ministries and the institutions working under them with foreign direct investment (FDI), IT industry development, export growth, and employment generation as the key objectives.

Syed said continuation of FTR would simplify tax structures for IT firms and encourage reinvestment by allowing exporters to retain more revenue for business expansion and technological innovation. Additionally, providing tax incentives and ensuring their policy-level consistency “is imperative to create a favorable business environment for the IT/ITeS industry”, he urged.

P@SHA chairman explained that reinstating the FTR for IT and ITeS exports would align Pakistan with regional competitors offering long-term tax incentives to attract FDI into their countries.

“The IT sector requires stability and consistency to maintain global competiveness, increase exports and create employment,” he said.

‘Disparity in income tax leads to brain drain’

Drawing attention of authorities concerned on disparities in rate of income tax being paid by salaried people at 5-35% in Pakistan and those pay in range of 0.25-1% in foreign countries, Syed said, “this wide difference in income taxes lead to talent migration, brain drain and the resultant challenges for local companies in retaining skilled IT and tech professionals”.

“(Therefore) the country needs to grossly reduce income tax rates on salaried individuals in IT companies to unlock industry’s full potential,” he urged.

‘WHT on payment be exempted’

P@SHA chairman recommended authorities to do away with “unfair withholding tax (WHT)” being collected on payments made to non-residents in US dollar-denomination for their services rendered in Pakistan under the current Income Tax Ordinance (ITO), 2001.

“The payment system should be made smooth as IT and ITeS exporters sometimes acquire foreigners’ services for the purpose of re-exports to earn foreign exchange for the country.”

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Such applicable withholding tax rates vary depending on the nature of the payment and the existence of double taxation agreements (DTAs) between Pakistan and the recipient’s countries. For instance, royalties and fees for technical services paid to non-residents without a permanent establishment in Pakistan are subject to a 15% withholding tax, he said.

“Therefore, it is proposed that payments made from Exporters’ Special Foreign Currency Accounts (ESFCA) for services rendered should be exempted from the WHT. This exemption would apply to all categories of IT services provided; and, would also encourage the inward repatriation of funds into Pakistan,” P@SHA chairman maintained.