Pakistan’s IT Sector Calls for Decade-Long Extension of Final Tax Regime

In a bold move aimed at securing long-term stability and global competitiveness, the Pakistan Software Houses Association (P@SHA) has urged the government to extend the Final Tax Regime (FTR) for IT and IT-enabled Services (ITeS) exports for another 10 years until 2035.

P@SHA Chairman Sajjad Mustafa Syed stated that this recommendation emerged from an extensive consultative process with local IT exporters and industry stakeholders. The current FTR is set to expire on June 30, 2026, and its continuation, he argued, is essential for sustaining the sector’s momentum in export growth, foreign investment, and job creation.

Why the FTR Matters

Under the FTR, IT exporters registered with the Pakistan Software Export Board (PSEB) benefit from a reduced 0.25% withholding tax rate on their export earnings. According to Syed, extending this tax relief will help firms retain more of their revenue for reinvestment in innovation, technology, and business expansion.

“Predictability and continuity are the backbone of investor confidence,” he stressed, noting that the IT industry is currently undergoing a surge in foreign interest, operational growth, and regional market diversification.

Aligning with Global Competitors

P@SHA emphasized that restoring and extending the FTR would place Pakistan on par with other regional economies offering long-term incentives to attract foreign direct investment (FDI). For Pakistan to position itself as a reliable global IT hub, it needs policy consistency and a tax environment conducive to innovation and talent retention.

The proposal is part of a broader set of budgetary and policy recommendations submitted to the relevant ministries ahead of the Federal Budget 2025–26. These suggestions are anchored in key national priorities — from boosting FDI and IT industry development to increasing exports and employment opportunities.

Addressing Talent Drain and Tax Disparities

Another major concern raised by P@SHA is the growing disparity in income taxation. While salaried IT employees face income tax rates ranging from 5% to 35%, remote workers and freelancers are taxed at significantly lower rates (0.25% to 1%). This imbalance, Syed warned, is contributing to brain drain, as skilled professionals seek more favorable environments abroad.

To counter this, P@SHA is advocating for substantial tax relief for salaried tech workers, which could help companies retain talent and unleash the industry’s full potential.

The association also highlighted another critical issue in the current tax framework. The burden of withholding tax (WHT) on payments to non-residents for services rendered in Pakistan. These payments are often taxed at steep rates, up to 15%, unless mitigated by Double Taxation Agreements (DTAs).

To encourage foreign exchange inflows, P@SHA proposes a WHT exemption for all IT services paid through Exporters’ Special Foreign Currency Accounts (ESFCAs). This measure, they believe, will promote the repatriation of funds and provide a more business-friendly climate for international partnerships.