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ISLAMABAD: Pakistan Software Houses Association ([email protected]) has expressed strong concern over proposed tax credit scheme and taking away tax exemptions for IT & ITES industry. According to a statement of the association issued here on Friday, IT & IT enabled Service sector has given record exports growth despite the pandemic with 40 percent increase in 2019-2020 and is on track to exceed $ 2 billion by the end of this financial year.

Industry's close engagement with PM office, through IT Task Force and [email protected] has recently resulted into announcement and work on phenomenal initiatives like STZA, reforms at SBP & amp; SECP. With recent growth pattern complimented by several supporting initiatives from PM office has triggered a phenomenal interest from global investors towards Pakistan.

Existing Tax incentives (till 2025) has been instrumental in our competitiveness regarding our traditional competitors like India, Bangladesh, Philippines and Vietnam. However, FBR's approach towards Tax Treatment has been detrimental to the growth of IT Sector as its policies aim solely at raising revenue by all means. Recent news of withdrawal of Income Tax Exemption on export of IT services, and replacing with a Tax Credit Scheme where the tax credit is subject to fulfilment of many conditions such as filing of tax withholding statements and sales tax returns amongst others, will negatively impact IT exports growth trend. In coming up with these conditions, FBR appears to have ignored the fact that export of IT services is exempt from sales tax, and hence there appears no justification to ask the industry to file sales tax returns, the association said. Even otherwise, sales tax on services is a provincial subject and is outside FBR's domain.

The FBR has further required full withholding of income tax on all payments and filing of withholding tax statements which will open a pandora box of tax inquiries whereby not just the so called "tax credit" be disallowed for alleged non-compliance with withholding tax regime on the whim of the tax officer, but additional tax demands will be raised for tax not withheld. Not only that even full compliance with these conditions is not a bar for FBR to carry out its audits.

The association further noted that exemption available to start-ups for initial three years after registration with PSEB is also proposed to be withdrawn and replaced by the same tax credit scheme. The motive appears to push the nascent start-ups and SMEs to incur additional costs and time for tax compliance alone and will reduce the ease of doing business for 90 percent of this sector.

Copyright Business Recorder, 2021

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