ISLAMABAD: The government has announced huge incentives for Information Technology (IT) Sector, IT exports and IT related services in the budget 2023-24 including removing regulatory duty on IT related equipment, granting the status of cottage industry and continuation of concessionary fixed tax rate of for exports for tax years 2024, 2025 and 2026 in a bid to compete with International standards and promote the sector.
Budget documents note that the government has proposed incentive for exporters of Information Technology (IT) and IT enabled services by allowing duty free import of IT-related equipment equivalent to 1 percent value of their export proceeds.
The government has further proposed the removal of regulatory duty on IT-related equipment to encourage Information Technology sector.
Grant of exemption of sales tax on import of IT equipment, by exporters of IT and ITeS registered with Pakistan Software Export Board, is announced in the budget.
Further the government has announced granting the status of cottage industry to the freelance exporter of IT and IT enabled services. Such freelance exporters will not be required to file sales tax return. Rate of tax on IT based system development consultants is proposed to be reduced to 15 percent from 16 percent.
Scope of IT and IT enabled services is proposed to be harmonized with scope envisaged under the Income Tax Ordinance, 2001 on the proposal of Ministry of Information Technology. Continuation of concessionary fixed tax rate of 0.25% for IT &ITeS exports for Tax years 2024, 2025 and 2026.
Withdrawal of Sales Tax return filing requirement for availing concessionary fixed tax rate of 0.25% for IT &ITeS exports. 4. Increase in business turnover limit of a manufacturer from Rs. 250 (m) to Rs. 800 (m) to qualify for concessionary tax regime for SMEs and inclusion of IT & ITeS in SMEs definition. There is a concessionary tax rate of 20 percent on banking company’s income from additional advances to IT &ITeS sector instead of standard rate of 39 percent.
There is extension for two years for the purpose of concessionary tax rate of 20 percent for banking company’s income from additional advances to low cost housing, agriculture, and SMEs including IT &ITeS.
To facilitate the business environment, freelancers have been declared to transfer sales tax registration and returns on annual exports up to $24,000. Also there is a simple single-page income for them.
IT and IT Enabled Service Providers will be allowed to use their Software and hardware worth one percent of exports and will be able to import tax-free. These imports are capped at $50,000 per year.
For Exporters of IT and IT Services, the Issuance of an Automated Exemption Certificate will be ensured. The current rate of sales tax on IT services under ICT is being reduced from 15% to 5%.
Professional training will be given to 50 thousand IT graduates in the next financial year.
The definition provided in the present law is quite clear and “IT services” include but not limited to software development, software maintenance, system integration, web design, web development, web hosting and network design; and “IT enabled services” include but not limited to inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, human resources (HR) services, telemedicine centres, data entry operations, cloud computing services, data storage services, locally television programs and insurance claims processing
Further there is also a facilitation measure to streamline processes for IT and IT-related services exporters, the issuance of Automated Exemption Certificates to non-residents within 30 days has been introduced.
These measures through budget 2023-2024 proves the government’s commitment to fostering a conducive business environment and encouraging investment in the IT Sectors, with the sole objective to facilitate economic growth and job creation in this field.
Copyright Business Recorder, 2023