IT Sector Calls for Decade-Long Tax Breaks to Boost Exports

• Extending the Final Tax Regime will ease tax compliance for IT companies: Chairperson.
• A significant proposal includes promoting foreign exchange repatriation.
• A 10-year tax exemption supports the aims of the Special Investment Facilitation Council (SIFC).

KARACHI: To bolster export growth and draw in foreign investment, the Pakistan Software Houses Association (P@SHA) has called on the government to extend the final tax regime (FTR) for IT and IT-enabled services (ITeS) for another ten years, as reported by The News on Thursday.

The current FTR is set to expire on June 30, 2026, and it provides a reduced withholding tax rate of 0.25% on export earnings for companies registered with the Pakistan Software Export Board (PSEB).

This request was voiced by P@SHA Chairperson Sajjad Mustafa Syed as part of the organization’s comprehensive budget recommendations for the Federal Budget 2025-26.

The proposals advocate for structural reforms aimed at boosting foreign direct investment (FDI), enhancing export competitiveness, creating job opportunities, and fostering the development of Pakistan’s IT sector.

Syed emphasized that prolonging the FTR until 2035 would bring stability, predictability, and confidence for investors, particularly as the industry experiences rapid growth, regional expansion, and increased global demand for Pakistani tech talent.

“Maintaining the FTR will streamline tax compliance for IT firms and empower exporters to reinvest in their businesses, driving growth, innovation, and digital transformation,” he stated. “Policy consistency and tax incentives are crucial for establishing Pakistan as a regional IT hub.”

He also mentioned that neighboring countries offer long-term tax benefits to attract IT-related investments and that Pakistan needs to implement similar strategies to remain competitive.

P@SHA believes that a decade-long tax exemption aligns with the goals of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision for substantial growth in IT exports.

Addressing concerns over income tax inequalities within the sector, Syed noted that salaried employees in IT firms currently face income tax rates between 5%-35%, while remote workers pay only 0.25% to 1.0%. This disparity, he warned, is contributing to brain drain and hindering local companies from retaining skilled personnel. He advocated for significantly lower income tax rates for salaried IT professionals to fully unleash the sector’s potential.

Another crucial proposal from P@SHA focuses on promoting foreign exchange repatriation. Syed criticized the current Income Tax Ordinance from 2001, which imposes a 15% withholding tax on payments to non-residents for services rendered, particularly in the absence of double taxation treaties.

To address this, P@SHA proposed eliminating the withholding tax on payments made from Exporters’ Special Foreign Currency Accounts (ESFCA). According to Syed, this exemption would apply to all types of IT services and facilitate the inflow of foreign earnings into Pakistan.

P@SHA’s budget recommendations reflect the organization’s broader goal of cultivating a sustainable and globally competitive digital economy grounded in policy continuity, tax reforms, and investment-friendly regulations.