The Pakistani government’s move to tax IT companies is proving to be counter-productive. What was aimed at increasing revenue is now having some negative repercussions. One of the alarming outcomes is the relocation of IT companies to foreign countries.
The government had imposed an additional 8% tax on the revenues generated by the IT industry in 2015-16. This has already resulted in nearly 40 percent of the companies moving their businesses to the United Arab Emirates.
Sajjad Syed, Chief Executive Officer of Excellence Delivered (ExD) Private Limited, one of the affected companies, confirmed the trend. He said his company outsources most of its non-core operations and is working with consultants. Their work primarily revolves around helping businesses in structuring IT systems.
He said the 8% additional tax on revenues levied has not only hindered the growth of the IT industry, but forced a large number of companies to relocate outside Pakistan.
The decision of imposing tax on IT services to generate additional revenues is actually proving to be fatal as several small companies have moved their offices to Dubai, a tax haven and only 1.5 hours away from Pakistan. – Sajjad Syed
He warned that things don’t look good for the IT sector as the booming rise of this industry has been arrested and has forced IT firms to re-evaluate their plans for expansion in Pakistan. He said that there is no other example of such draconian taxes on the IT industry anywhere around the world. Most of the countries offer subsidies for the IT sector while it’s the other way around in Pakistan. He said that companies do not desire subsidies but such high rates of tax are hurting the growth of IT companies.
Syed said that some companies have moved towards cash based systems in an attempt to avoid taxes therefore government’s tax projections will become hard to meet. On the other hand, outsourcing and relocating will result in increased employment and business in places like Dubai instead of Pakistan. Relocating companies will have little compulsion to hire Pakistanis; instead, they will certainly move their capital to other countries and outsource work to India, thus resulting in little to no gain to the Pakistani industry.
Many government officials and senior analysts have appreciated the growth of the IT sector over the past few years but the progress needs to continue. The CEO of ExD also suggested that a formal study should be conducted to capture the size of the industry.
India has announced a 3 year tax exemption status for startups set up after April this year. With our neighbor taking steps to foster entrepreneurship and the growth of their IT sector, it seems like our policy makers could do much better than to take anti-business measures, especially at a time when FDI levels are low.
Via: Express Tribune
“40% of the IT companies moving to UAE” How correct this claim is? Which major (small, medium or large companies) have moved their businesses to UAE since the new taxation? 40% seems to be an over-exaggerated figure.
well , dunno how authentic this is …
but screw the govt !
Irrational taxation is deplorable. Correct. Underpaying employees is even more outrageous. Do something about both of the menaces. Dear industry, most of you have already had your offices in at the least UAE. When you move your offices abroad, move your human resources as well. That brain drain will actually shake the govt. well.
When you implement SAP in gulf you have to move your resource and bear all expenses. And SAP consultants are pretty well paid ones.
I know the impact and suffering from it .. This new taxation stopped our growth in IT industry. Unfortunately our govt doesn’t understand IT Business and this industry very well
Har industry ko lout kar paisa jama karlo aur phir kaho “Hum itna paisay lae hain mulk main, itna bachayaa hai humne” is the policy of this corrupt govt.
It is just the copied (and modified) article from Express Tribune and alas the writer has done a very little to work on it. (as every other “Karaye kay likhari” doing).
1) The IT export companies are still exempted from the taxes. (till june
2016) and the parliament will decide after June its next policy.
2) Till now the taxes are implemented on the Software houses giving
services to local (Pakistani) companies or individuals or organizations, it was there since long
3) We mainly talk about the IT export companies in our discussion, so the main point of its success is not the lack of taxes in Pakistan but is the low wage rates and abundance of talent. If the companies are moving their operations out then its ……….
4) Yes the companies are moving out, but not for their primary operations but as expansion. Many companies have established their offices in Middle East, Far East, US and Europe for market capturing. And its a good thing
@aamir I know u are getting benefited by every article on your site but haven’t u heard “Content is king”. Dont just hire Good English (which actually is Hollywood English) writers, hire good English writers with good Journalist skills (and values).
Disclaimer: I also own a dev company since 3 years.
What about companies implementing and outsourcing in Pakistan? If a company is largest implementer of SAP in Pakistan and also giving services? it’s 16% +8%+ tax on revenue/profits so is it fair to pay more than 30%? If you are a Pakistan based company and your revenues are here then you have to pay mate! The tax rebate is for foreign income not local sales.
lol and they said they are going to bring prosperity here?
I think it will increase more than 40 % very soon when the tax will be imposed i think the government dont like people to work in Pakistan specially in IT.