ISLAMABAD: The Pakistan Software Houses Association (P@SHA) has urged the government to facilitate the IT sector through a rational taxation regime, as the current tax structure is restricting the industry’s growth.
In its budget proposals for the fiscal year 2025-26, P@SHA has called for the elimination of disparities in taxation between salaried employees, who are taxed at rates ranging from 5% to 35%, and remote workers, who are taxed at 0.25%–1%. The association argues that these disparities lead to talent migration and pose challenges for local companies in retaining skilled professionals. To address this, P@SHA has recommended harmonizing tax rates between remote workers and local employees.
In a proposal submitted by P@SHA Chairman Sajjad Mustafa Syed, the association has urged the government to streamline the affairs of the Federal Board of Revenue (FBR). It has suggested the appointment of dedicated Commissioners to resolve IT industry-related tax issues. This measure would help prevent unnecessary tax notices and ensure that tax officers develop a better understanding of IT-specific tax matters, leading to more informed decision-making and a streamlined tax administration.
P@SHA has also called for the restoration of the Final Tax Regime (FTR) for IT and IT-enabled services (ITeS) exports for the next 10 years (2025–2035) to ensure predictability, continuity, and investor confidence in the IT industry.
Currently, a 5% tax is imposed on corporate debit card transactions linked to Exporters’ Special Foreign Currency Accounts (ESFCA) at the time of payment, while IT companies already pay 0.25% under the FTR on their export proceeds. P@SHA has demanded an exemption from the additional 5% tax on corporate debit card transactions to prevent double taxation and promote the use of ESFCAs.
The association has also requested the removal of withholding tax (WHT) and other excessive charges on foreign currency (FC) retention accounts to incentivize the legitimate use of foreign currency earnings. At present, FC account holders incur WHT and other charges for using foreign currency debit cards, discouraging legitimate usage. Given that foreign income is already exempt under the FTR, imposing additional taxes lacks a justifiable basis, P@SHA argues.
To further boost the sector, P@SHA has recommended the introduction of a tax deduction scheme to incentivize research and development (R&D) activities within IT companies. This scheme would offer tax deductions on a specific percentage—such as 30%—of qualifying R&D expenses incurred by IT firms. The association has emphasized that while the IT sector heavily relies on adapting existing technologies, a robust domestic innovation ecosystem is crucial for long-term, sustainable growth. Indigenous innovation would enable the country to compete effectively in the global market.
Additionally, P@SHA has highlighted issues related to double taxation, as software is treated as goods by federal tax authorities and as services by provincial tax authorities. The association has urged the government to exempt laptops, computers, and other IT equipment from sales tax and reduce the tax rate from 10% to 5% to support Pakistan’s digital transformation.
Moreover, P@SHA has proposed scaling up the TechLift Program, a nationwide demand-based skills development initiative focused on graduate-level bootcamp training. The IT Ministry, in collaboration with P@SHA, would identify skill gaps and design training modules tailored to industry needs.
