PML-N senator alleges textile exporters misreporting as IT firms to evade 29% income tax

Pakistan Muslim League Nawaz (PMLN) Senator Anusha Rahman has alleged that textile exporters are misreporting their exports as information technology (IT) exports to benefit from significantly lower tax rates, raising concerns about the legitimacy of recent double-digit growth in IT exports, The Express Tribune reported. 

During a Senate Standing Committee on Finance meeting chaired by PPP’s Senator Saleem Mandviwalla, Rahman said that many textile exporters were exploiting the 0.25% income tax rate on IT and technology-based exports to avoid the 29% income tax imposed on goods exporters in the last budget. She noted that this claim was based on reports from the IT industry and was further supported by a sudden surge in IT-related company registrations.

Federal Board of Revenue (FBR) Chairman Rashid Langrial acknowledged the possibility of such misuse and assured the committee that an investigation would be conducted. 

Pakistan’s IT exports surged by 28% to $1.9 billion in the first half of FY25, a rise that has been met with skepticism, especially following government-imposed internet restrictions that had been expected to slow industry growth.

Securities and Exchange Commission of Pakistan (SECP) data showed that in January alone, 652 new IT and e-commerce companies were registered, the highest of any sector, accounting for 20% of all incorporations that month. 

Industry insiders suggested that some of these newly formed companies, registered after June 2024, were reporting higher sales than long-established firms, further fueling concerns over tax misreporting.

The IT sector has warned that such misreporting could lead to exaggerated sectoral growth figures, potentially resulting in the withdrawal of tax incentives for genuine IT exporters.

Meanwhile, the Senate committee also debated the government’s decision to classify the Tax Laws Amendment Bill 2024 as a Money Bill, limiting the Senate’s ability to vote on it. Mandviwalla said that Speaker of the National Assembly Sardar Ayaz Sadiq had denied personally declaring it a Money Bill, suggesting that the government itself had taken the decision.

The bill, which includes new economic restrictions on property and vehicle purchases, faces opposition from legislators and real estate stakeholders, who argue it could dampen growth in the sector. Despite this, the government is keen to pass the bill before the IMF’s review mission arrives on March 3.