The federal government has extended the income tax exemption for the IT sector until June 2029 under the Federal Budget 2026-27, benefiting software exporters, freelancers, and IT-enabled service providers.
The exemption under Section 65F of the Income Tax Ordinance had been due to expire on June 30, 2026, after which IT exporters risked returning to standard tax rates.
IT exporters registered with the Pakistan Software Export Board will continue benefiting from a reduced withholding tax rate of 0.25 percent on export proceeds, compared to the standard one percent applied elsewhere.
The three-year extension provides policy certainty to businesses and signals the government’s commitment to growing Pakistan’s digital economy as a reliable source of foreign exchange earnings.
Industry stakeholders had warned that allowing the exemption to lapse would discourage IT investment and push freelancers away from formal banking channels, undermining sector documentation efforts.
Prime Minister Shehbaz Sharif reportedly took direct notice of industry concerns and directed authorities to ensure continuity of tax incentives supporting the IT sector’s export growth trajectory.
The government has also reduced the withholding tax on international debit and credit card transactions from 5% to 0.5%, a reduction of 4.5 percentage points effective under Budget 2026-27.
The card transaction tax cut is expected to ease the financial burden on individuals and businesses conducting international payments through formal debit and credit card channels.
The measure is also designed to encourage greater use of formal digital payment channels among Pakistani consumers and businesses engaged in cross-border commerce and international transactions.
Pakistan’s IT and IT-enabled services sector has consistently recorded growth in export earnings, driven by a growing pool of freelancers, software developers, technology startups, and export-oriented firms.
The continuation of the reduced tax rate is expected to encourage further foreign investment, help local firms expand internationally, and attract new clients to Pakistan’s technology market.
Officials say stable tax policies are essential for sustaining growth and strengthening Pakistan’s competitiveness against regional technology hubs, particularly for young professionals entering the digital economy.
