The Sindh Government has announced through the Sindh Budget 2017-18 that it plans to continue imposing a sales tax on exports of information technology enabled services (commonly known as call centers and BPO services). This treatment is unique to only Sindh where exports and foreign exchange earning businesses are discouraged or asked to move their operations to other provinces/ countries. This bizarre policy move by the Sindh government has left the industry and experts baffled, commentators remain unclear what the motives behind such a move could be.
It is worth mentioning that no other province has imposed a sales tax on exports of services and the Federal Government has, in fact, announced a 3-year income tax exemption for new Information Technology & Information Technology-Enabled Services companies through the Federal Budget 2017-18 and subsequent Finance Bill 2017. The Federal Government has also announced sales tax exemption on exports of IT Services from Islamabad and other Federal territories. The Income Tax Ordinance on the other hand already grants export income tax exemption till 30 June 2019 to all exporting Information Technology & Information Technology-Enabled Services companies.
Pakistan Software Houses Association for IT & ITES (P@SHA) had been in talks with the Sindh Government and Sindh Revenue Board on the matter of export services sales tax imposition for over a year, and a long due favorable policy announcement was expected through the Sindh Budget 2017-18. The announcement however through the Sindh Budget 2017-18 proposes to reduce the export sales tax from existing 13% to new 3% but not abolishing it like other provinces. This has raised concerns over Sindh Government’s commitment to creating jobs in the province and increasing exports.
Sales tax being a consumer tax is not to be borne by the service provider and is intended to be paid by the customer. Therefore sales tax application remains a matter for domestic sales and in export scenarios where the customer is not in Pakistan sales tax is not applied across any industry. The Sindh Government in a first of its kind move wants businesses in Sindh to pay sales tax on exports, which translates into paying a consumer tax from the service provider’s own pocket.
The State Bank of Pakistan has issued 10 months (July 16 to April 17) exports data for IT & ITES which stands at USD 532.91 million out of which call centers contribute USD 67.09 million. The bulk of this export will now either move to other provinces or tax friendly countries, depriving Sindh of the potential export opportunities and employment for thousands of local young individuals.
About P@SHA: Pakistan Software Houses Association for IT & ITES (P@SHA), is the trade association representing the Pakistan IT & ITES sector. P@SHA is associated with & recognized by institutions such as the World Information Technology and Services Alliance (WITSA), ASOCIO (Asian Oceanic Computing Industry Organization) and APICTA (Asia Pacific ICT Alliance). With over 450 member companies nationwide, P@SHA has been the voice of the industry, advocating policy initiatives and working towards creating a high growth sustainable business environment for the tech sector in the country.