Technology Print edition: 2025-05-21

Pakistan’s IT, ITeS sector: P@SHA underscores need for consistent tax policy

Published May 21, 2025 Updated May 21, 2025 09:25am

3 min

By Sohail Sarfraz

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ISLAMABAD: The Pakistan Software Houses Association (P@SHA) has strongly recommended a consistent tax policy with no changes in the tax structure of IT and IT-enabled Services (ITeS) sector in the Federal Budget 2025-26.

Addressing at a press conference here on Tuesday, Sajjad Mustafa Syed, Chairman P@SHA stated that the government must ensure policy stability and tax clarity for the IT and IT-enabled Services (ITeS) sector in 2025–26. As a cornerstone of Pakistan’s digital economy, the IT industry has demonstrated resilience amid economic turbulence, contributing USD 3.2 billion in exports in 2023–24, and is projected to close the current fiscal year at nearly USD 4 billion. Forecasts estimate a USD 15 billion export potential by 2030.

Despite these promising numbers, policy inconsistency, ad hoc taxation, and operational challenges continue to undermine investor confidence and economic contributions, he regretted.

Policy stability is essential for sustaining the momentum we’ve recently achieved. The recent DFDI event alone resulted in over USD 700 million in investment commitments — of which USD 600 million was facilitated by P@SHA, he said.

Frequent changes in tax laws — whether related to export incentives, withholding taxes, or other fiscal instruments — discourage long-term investment. The lack of predictability threatens to undo the combined efforts of public and private sector stakeholders, including MOITT, PSEB, SIFC, and TDAP. If investor confidence is shaken, Pakistan risks forfeiting years of progress, including advances in branding, skill development, and digital infrastructure, he added.

“We are not asking for exemptions that jeopardize international obligations. However, if our practical, fair recommendations are implemented in both letter and spirit, Pakistan’s IT sector can contribute substantially more to national growth,” Sajjad said.

He recommended there is a critical need to align tax treatment between employees of IT firms and independent remote workers. The P@SHA urged the government to formally define remote workers in the Income Tax Ordinance (2001). The proposed classification applies to individuals earning over Rs 2.5 million annually through foreign remittances or working with fewer than three international clients, taxing them similarly to salaried individuals.

This recommendation aims to expand the tax base while leveling the playing field. The current disparity creates an uneven labor market where it’s more cost-effective for global companies to hire Pakistani talent directly rather than through local firms. As a result, local IT businesses lose both competitiveness and valuable export revenue. A clear and fair framework will bring transparency for taxpayers and authorities alike and help protect Pakistan’s economic interests.

IT firms, especially call centres and BPOs, operate on narrow margins, have service level agreements and cannot afford such disruptions. Legislation must be enacted to shield them from outdated and misaligned labor regulations. Until reforms are complete, temporary exemptions must be provided to IT companies from EOBI and other arcane labor laws.

Despite being one of the region’s lowest revenue-per-employee markets, Pakistan’s IT sector employs a massive formal workforce of over 600,000. The sector’s resilience is remarkable, bearing some of the highest input costs, yet continuing to grow.

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