Pakistan’s IT sector wants long-term tax relief to keep exports growing. Without it, jobs and foreign investment could suffer. Here’s why the government must act.
Pakistan’s tech industry is at a crossroads. The Pakistan Software Houses Association (P@SHA) is urging the government to extend a crucial tax break for IT companies—warning that its expiration in 2026 could slow exports, scare off investors, and hurt job creation.
What’s at Stake?
The Final Tax Regime (FTR) lets IT exporters pay just 0.25% tax on their earnings—a policy that has helped the sector grow rapidly. But this benefit ends in June 2026, creating uncertainty for businesses.
P@SHA Chairman Sajjad Mustafa Syed says keeping FTR for 10 more years (until 2035) is critical because:
✅ Investors need certainty – Long-term tax policies attract foreign funding.
✅ Companies can reinvest – Lower taxes mean more money for hiring and innovation.
✅ Pakistan stays competitive – Neighboring countries like India offer similar perks.
The Brain Drain Problem
Pakistan’s IT workers face a big gap in taxes:
- Salaried employees pay 5-35% income tax.
- Freelancers and remote workers pay just 0.25-1%.
This pushes skilled professionals toward freelancing or moving abroad, making it hard for local firms to keep talent. P@SHA wants fairer tax rates to stop this drain.
Easier Money Flow = More Growth
Right now, sending payments abroad for tech services can mean a 15% tax cut. P@SHA proposes:
🔹 No tax on foreign payments from export accounts.
🔹 Smoother transactions to bring more foreign earnings back to Pakistan.
What Happens Next?
The government must decide: Will it support the IT boom or let it slow down? With the right policies, Pakistan could become a top tech hub—but only if taxes don’t get in the way.
Tax Disparities Hurting IT Talent Retention
Mr. Syed highlighted a critical issue: Pakistan’s IT professionals face high income tax rates (5-35%), while remote workers pay just 0.25%-1%. This disparity pushes skilled workers towards freelancing or overseas jobs, making it difficult for local companies to retain talent.
To unlock the sector’s full potential, P@SHA recommends reducing income tax rates for salaried IT employees, ensuring a level playing field.
Encouraging Foreign Exchange Repatriation
Another key proposal involves exempting Exporters’ Special Foreign Currency Accounts (ESFCA) from withholding tax (WHT) on payments to non-residents. Currently, foreign service providers face up to 15% WHT, discouraging foreign currency inflows.
Removing this barrier would:
✔ Boost IT exports by making transactions smoother
✔ Encourage repatriation of foreign earnings
✔ Align Pakistan’s policies with global IT hubs
Conclusion: A Make-or-Break Moment for Pakistan’s IT Future
P@SHA’s recommendations aim to strengthen Pakistan’s IT industry, ensuring it remains competitive globally. By extending FTR for 10 years, reducing salary taxes, and easing foreign exchange restrictions, the government can unlock billions in exports, FDI, and job creation.
The ball is now in the government’s court—will they act to secure Pakistan’s digital future?