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The Pakistan Software Houses Association (P@SHA) is seeking clear tax regulations for the IT and IT-enabled Services (ITeS) sector in the Federal Budget 2025-26.
As a key driver of Pakistan’s digital economy, the IT industry demonstrated resilience amid economic challenges, contributing $3.2 billion in exports in FY 2023-24 and is projected to reach nearly $4 billion by the end of the current fiscal year. Forecasts suggest a $15 billion export potential by 2030.
Despite this promising growth, inconsistent policies, ad hoc taxation, and operational challenges continue to hinder investor confidence and limit the sector’s economic impact.
In a statement, P@SHA has highlighted the urgent need to harmonize tax treatment between IT company employees and independent remote workers. The association has called on the government to formally define remote workers under the Income Tax Ordinance (2001). This definition would cover individuals earning over Rs2.5 million annually through foreign remittances or working with fewer than three international clients, taxing them similarly to salaried employees.
This proposed measure is expected to expand the tax base and create a level playing field. Currently, tax disparities incentivize global companies to hire Pakistani talent directly, bypassing local firms, causing a loss of competitiveness and export revenue for domestic IT businesses. A clear and fair tax framework will promote transparency and protect Pakistan’s economic interests.
Ensuring Consistency in Tax Policies for IT Growth
Pakistan’s IT sector is still developing, with its export growth tied closely to the domestic market’s health. P@SHA stresses that policy stability is crucial to sustaining recent momentum. The recent DFDI event alone secured over USD 700 million in investment commitments, with $600 million facilitated by P@SHA.
Frequent tax law changes, such as export incentives or withholding taxes, discourage long-term investment and risk undoing efforts by MOITT, PSEB, SIFC, and TDAP. Investor confidence is key; losing it could jeopardize years of progress in branding, skills, and infrastructure development.
To stay competitive, Pakistan’s IT industry needs consistent tax policies like those that supported global tech sectors in early stages. P@SHA recommends no changes to the current tax structure for predictable growth.
Operational ease is vital for IT sector expansion. Pakistan must digitize processes for international capital repatriation to facilitate investment flow. Additionally, harassment from federal and provincial bodies—including EOBI and tax authorities—must stop. Threats like office closures and arbitrary notices create a hostile environment, driving businesses offshore.
IT companies, especially call centers and BPOs, operate on tight margins and have strict service agreements that can’t withstand disruptions. Urgent legislation is needed to shield them from outdated labor laws. Until then, temporary exemptions from EOBI and other labor regulations should be provided.
Pakistan’s IT sector employs over 600,000 formally and continues to grow despite low revenue per employee and high input costs. However, resilience has limits. Without urgent fiscal reforms and steady policies, Pakistan risks losing its digital edge to more agile competitors.
