Package for IT sector: govt envisages $1bn yearly inflows

Updated 02 Mar, 2022

ISLAMABAD: The government envisages forex inflows of $1 billion annually for companies/freelancers, besides bringing internationally parked foreign currency to Pakistan, after the prime minister announced an incentives package for IT sector.

Prime Minister Imran Khan, on Monday, announced 100 percent tax exemption for both companies and freelancers in the IT sector, 100 percent foreign exchange exemption, and 100 percent exemption from capital gain tax for investments in IT startups.

The Federal Board of Revenue (FBR) has estimated revenue loss of around Rs1.944 billion on account of proposed income tax exemption to the exporters of computer software, IT services or IT enabled services from the income from exports of computer software.

Talking to Business Recorder, government officials and telecom experts termed the incentives package a timely intervention by the government, which would help in bringing internationally parked foreign currency to Pakistan, encouraging foreign companies to bring business and employment creation and entrepreneurship promotion in the country.

Telecom experts said that there were two major policy challenges including the inconsistence tax regime and opening foreign currency account, which hurt the IT and Telecom sector badly. Due to these challenges huge businesses are being lost. Bringing capital into the country and taking outside the country were major obstacles, they added. However, after the incentives package, both these issues of the IT sector are expected to be resolved which help the industry to grow more rapidly besides create jobs opportunities.

Another government official said that the incentives would be available only to those firms/freelancers which are registered with the Pakistan Software Exports Board (PSEB). Currently, freelancers are not ready to get registered; however, after the package, it is expected that freelancers would get register, which would help in expanding the tax net.

They further said that IT/ITES and freelance sector is not operating like the traditional export sectors. India’s last month’s IT exports surpasses our total national exports (both goods and services) because countries like India, Vietnam and Thailand are treating these sectors differently. Any sudden regime change, taking without key stakeholders on board, causes a very negative impact on Investor sentiment. Same happened with IT sector in last year March, when Tax regime was changed without taking Ministry of IT and Telecom onboard.

Federal Minister for Information Technology and Telecommunication Syed Aminul Haque termed the package an historic which would help in achieving the export target of $5 billion by 2023.

In a historic move, number of incentives had been approved by Prime Minister Imran Khan to facilitate IT/ITES sector and freelancers and startups. Tax exemption benefit which was the biggest demand of the sector, and other fiscal and non-fiscal incentives for the industry were proposed by the MoITT.

He further said that aggressive growth targets and timely interventions by the federal government have set all the stakeholders on the right pace to meet the desired business potential and compete in the international market. Long outstanding issue of IT companies regarding easy inflow/outflow of foreign currency, has also been addressed as specialised foreign currency accounts for IT/ITeS companies and freelancers will be introduced to meet their operational needs.

Barkan Saeed, chairman Pakistan Software Houses Association for IT and ITeS (PASHA) told Business Recorder that the latest tax exemption announced by the prime minister will increase the IT/ITeS exports. This benefit along with the cash reward benefit announced last year will help in increasing IT/ITeS exports.

The IT companies and freelancers have been allowed to open USD bank accounts with 100 percent retention and also allowing them to send money abroad. This facilitation may have the same effect as Roshan Digital account, which are helping bring billions of USD to Pakistan.

Copyright Business Recorder, 2022

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