Folks wonder why Pakistan’s Information Technology (IT) exports continue to remain drab. Comparison with India is usually misleading, given its scale. But it’s a pity that the officially-recorded IT export numbers haven’t yet crossed the billion dollar mark for Pakistan. Over in India, just the software exports reportedly clocked $111 billion last year.
It’s not as though successive governments here haven’t been doing anything to rev up software exports. There have been several incentives on the fiscal side. Chief among them is the long-running tax exemption on income arising from export of computer software, IT and IT-enabled services. In the latest budget, this income tax exemption, expiring in June 2019, has been extended to June 2025.
Creation of software technology parks (STPs) has also been on the radar for some time. About a dozen STPs have been established in cities like Lahore and Islamabad. But their utilization is critical. Unless and until big software houses, including prominent IT multinationals, come in, it will be difficult to build the scale that is required to service IT needs of clients overseas. Besides, the government needs to accede to the WTO’s Informational Technology Agreement, to bring down cost of imported ICT hardware.
Leading government officials dealing with the IT sector have in recent years refuted this notion that Pakistan’s IT exports were under-performing. Instead, they put actual quantum of IT exports around $2 billion per annum and faulted the big local software houses for not repatriating most of their export earnings back home.
In a first, the outgoing government has announced a 5 percent cash award for IT exporters. It’s basically an incentive for exporters to bring back more of their export earnings. It needs to be seen how enticing those “rewards” are and whether the next government will take up this idea. But it is clear that there is not much that the government can do to force software makers to repatriate more of their export earnings, if indeed they are holding bulk of their profits abroad.
There is an opportunity in the world of freelancing. IT freelancers exist, working from home and cafés in major cities. Not all of them are young rookies coming straight out of undergrad programs.
Many happen to be veterans of leading local and multinational software houses, managing small local teams for clients overseas. More often, these earnings don’t get reported properly under different heads of IT export.
While these freelancers generally have lucrative contracts, the problem remains the same: they can’t build scale. Without scale, local software scene will linger in the low end of the value chain. None of the leading local software houses currently has revenues exceeding $50 million per annum. It is time for serious investment in this sector, which can also help boost Pakistan’s forex cover in the long run.
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