New taxes threaten IT sector stability

ISLAMABAD: The fiscal year 2024-2025 budget imposes heavier income taxes on the skilled salaried class, potentially triggering a significant brain drain that could severely damage the Information Technology (IT) sector. Additionally, the General Sales Tax (GST) on IT hardware has doubled from 5% to 10%, hindering digitalization efforts, according to IT professionals and experts. They warn that these new taxes could cripple the burgeoning IT industry.

Professor Tahir Mahmood Chaudhry, Chairman of the Computer Society of Pakistan (CSP), voiced concerns over the IT sector’s future. He emphasized the sector’s potential to generate 15%-30% of revenue from IT exports to alleviate dependence on the International Monetary Fund (IMF) and the World Bank (WB). The fluctuating US dollar benefits local IT companies receiving international payments, but transferring money from Pakistan to other countries remains challenging due to stringent regulations.

Chaudhry criticized the government’s fiscal policies, noting that taxes are imposed on funds transferred from foreign countries to Pakistan, despite these amounts already being taxed abroad. He also highlighted the financial strain of new taxes on computer hardware, which IT companies must purchase at a high exchange rate.

Muhammad Zohaib Khan, Chairman of the Pakistan Software Houses Association (P@SHA), echoed these concerns. He lamented that the budget ignored P@SHA’s proposals for IT sector growth, burdening the skilled salaried class with higher income taxes that could drive a brain drain. Khan pointed out that the Rs79 billion allocated is mainly for government projects and IT parks, without addressing payroll incentives crucial for supporting remote workers. The GST increase on IT hardware, he argued, will impede digitalization efforts, undermining the government’s promises of fostering IT growth.

Khawaja Fahad Shakeel, an AI strategist and CEO of Workforce Commerce, warned that the changes in income tax slabs will lead to a loss of highly skilled IT staff, pushing professionals towards freelancing and leaving local IT firms struggling with tax burdens. He highlighted that professionals earning Rs800,000 to Rs1 million monthly will now face Rs300,000 to Rs350,000 in taxes, accelerating brain drain and adversely affecting the IT sector’s growth trajectory since 2022.

Dr. Noman Said, CEO of SI Global Solutions, criticized the GST hike on laptops from 5% to 10%, arguing that it will harm consumers and the tech industry alike. He pointed out the increased challenges for the hardware manufacturing sector, which lacks clear vision and effective measures to curb grey market products. Said stressed that compliant businesses and consumers face higher costs, giving non-compliant entities an unfair advantage. He called for a balanced approach and stronger regulatory enforcement to prevent stifling legitimate market growth and technological advancement.

These expert opinions highlight the urgent need for policy amendments to safeguard the IT sector’s future. The government’s current tax strategy risks short-term financial gains at the expense of long-term industry stability and growth, which is vital for Pakistan’s economic development.

Monitoring Desk
Monitoring Desk
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