IT industry seeks 10-year tax relief for export growth

KARACHI: The Pakistan Software Houses Association (P@SHA) has urged the government to continue the final tax regime (FTR) for IT and IT-enabled services (ITeS) for a period of 10 years, in a bid to strengthen export growth and attract foreign investment. The current FTR, which allows a reduced withholding tax of 0.25 per cent on export proceeds for PSEB-registered companies, is scheduled to expire on June 30, 2026.

P@SHA Chairperson Sajjad Mustafa Syed made the appeal as part of the association’s detailed budgetary proposals for the upcoming Federal Budget 2025-26. The proposals emphasise structural reforms focused on enhancing foreign direct investment (FDI), export competitiveness, employment generation and overall development of Pakistan’s IT sector.

Syed stressed that extending the FTR until 2035 would ensure stability, predictability and investor confidence, at a time when the industry is witnessing rapid growth, regional expansion, and increasing global demand for Pakistani tech talent.

“The continuation of FTR will simplify tax compliance for IT firms and enable exporters to reinvest in business growth, innovation, and digital transformation,” he said. “Policy-level consistency and tax incentives are essential for positioning Pakistan as a regional IT powerhouse.”

He also pointed out that regional competitors offer long-term tax incentives to attract IT-related FDI, and that Pakistan must adopt similar measures to stay competitive. A 10-year tax exemption, according to P@SHA, aligns with the objectives of the Special Investment Facilitation Council (SIFC) and the prime minister’s vision for exponential growth in IT exports.

Raising concerns over income tax disparities within the sector, Syed noted that salaried employees in IT companies currently face income tax rates ranging from 5-35 per cent, compared to the 0.25 to 1.0 per cent paid by remote workers. This imbalance, he warned, is contributing to brain drain and making it difficult for local firms to retain skilled professionals. He called for significantly lower income tax rates for salaried IT professionals to unlock the sector’s full potential.

Another key proposal from P@SHA involves encouraging foreign exchange repatriation. Syed criticized the current Income Tax Ordinance, 2001, which imposes a 15 per cent withholding tax on payments made to non-residents for services rendered, particularly in the absence of double taxation agreements.

To counter this, P@SHA has proposed an exemption from withholding tax on payments made from Exporters’ Special Foreign Currency Accounts (ESFCA). This, Syed said, would apply to all categories of IT services and would facilitate the inward flow of foreign earnings into Pakistan.

P@SHA’s budgetary proposals reflect the association’s broader push to create a sustainable and globally competitive digital economy, rooted in policy continuity, tax reforms and investment-friendly regulations.