3 min read
The Pakistan Software Houses Association (P@SHA) has expressed deep concerns over the federal government’s Budget 2025-26, stating that it may be remembered not for its promises, but for the critical oversights it contains, particularly in relation to the IT industry.
The new budget offers no growth opportunities. Instead, it delivers a “death knell” to Pakistan’s IT and ITeS sector, says P@SHA. This sector employs over 600,000 skilled youth. Yet, it has once again been ignored in national planning.
P@SHA described this budget as a “quiet but decisive blow” to an industry that has been central to Pakistan’s ambitions of digital growth, export revenue, and job creation.
At the core of the discontent are two long-standing demands:
- A clear taxation policy for remote workers.
- Continuity of the current tax regime for formal IT exporters.
The sector has been advocating for a stable 10-year tax framework, not temporary reliefs. Such stability is vital for long-term investment, scalability, and maintaining global competitiveness. However, these appeals have been overlooked yet again.
Growing Imbalance in the Ecosystem
P@SHA has raised concerns about a widening gap between remote workers and local firms. While remote professionals, often working as de facto full-time employees for international companies, are largely untaxed, local companies remain burdened with taxes, audits, and complex regulations.
This discrepancy makes it more expensive to hire domestically and leads to capital flight and informal work arrangements, undermining the very fabric of Pakistan’s formal tech economy.
According to P@SHA, a straightforward policy solution has been repeatedly proposed: “classifying any individual earning over Rs. 2.5 million annually from fewer than three foreign sources as a remote worker.”
This method would only impact the top 5% of earners while protecting small freelancers and remitters.
P@SHA also highlighted that the State Bank already has the data needed, making this an easy and immediate fix, yet the government has shown no interest in implementing it.
Foreign Investment in Jeopardy
Even more alarming is the government’s failure to extend the tax regime for IT exporters. It is a critical factor behind Pakistan’s recent Digital Foreign Direct Investment (DFDI) commitments, amounting to over $700 million.
That investment, now at risk, was secured with significant effort and spending. Without a consistent tax framework, foreign investors are unlikely to stay, and Pakistan may lose credibility on the global stage.
P@SHA warned that the lack of action may result in a complete derailment of Pakistan’s most promising sector. Job losses, a decline in exports, and a shattered dream of reaching $25 billion in IT exports could soon become a reality.
The association emphasized, “This is not about incentives anymore. It is about preserving one of Pakistan’s only working economic success stories.”
P@SHA urges the government to reconsider the budget before irreversible damage occurs. The current policy penalizes transparency, deters investment, and rewards non-compliance. For Pakistan’s IT industry to thrive, immediate reforms are essential.
