State Bank of Pakistan (SBP) has taken a series of concrete steps to streamline exports income of the IT industry through the channel of banking sector, which could reduce the under-reporting foreign exchange earning of IT and its enabled services.
The implementation of the instructions of the central banks to commercial banks and software houses will lead to identify the nearest figure of IT exports values on monthly and annually basis, which will also help all stakeholders to realize the potential and status of IT sector in the country.
IT is considered is among the high potential sectors in the country for multiple factors especially for employments generation and exports receipts, however the foreign exchange received by the country through banking channel has never crossed a level of $ 1 billion dollar in the accounts of SBP.
On the other hand, software houses and its relevant bodies particularly P@SHA and Pakistan Software Exports Board (PSEB) usually stated that the Pakistan exports values are nearly three times what the central bank quoted.
For instance, the central bank stated that exports of IT and enabled services stand at $770 million in ten months of the current financial year, but PSEB said that the annually exports crossed a level of $2.8 billion.
Accordingly, if receipts are reported by SBP as monthly average of $77 million for the remaining months of May and June, the overall exports of IT sector stand at $924 million. And, if it is calculated with three as per PSEB and P@SHA claims, it will almost reach $2.77 billion.
But where the receipts are gone out of banking channels?
It has been observed that some banks report IT remittances under non-IT codes such as personal remittances, expenses, etc.
Especially, banks report remittances of IT services of freelancers under their personal remittances instead of the specified IT related codes in the foreign exchange returns code guide. Pakistan is ranked fourth worldwide as the biggest country of freelancer.
The central bank pointed out that the exports inflows of IT sectors are also under-reported/ misreported by the banks including telecommunication services, call center, business network services, teleconferencing and support services, software consultancy, computer hardware consultancy, data process services, consultancy as development, software/app development and programming.
Besides, software exporters having their offices in Dubai and different tax-free states do remit their money on the account of remittances.
Besides, exports receipts are kept abroad by Pakistani companies in countries having market and its linkages including availability of facilities and incentives.
There are many small software houses working independently for foreign clients but they are neighter registered with P@SHA nor with PSEB. Inflows received from clients are usually carried out under foreign remittances mainly for avoiding taxes.
Measures for Software Houses
Banks are strictly advised to identify and classify inflows on account of computer and information services under proper codes in ITRS.
The Software houses/companies will get themselves registered with the concerned area office of the Foreign Exchange Operations Department, SBP-Banking Services Corporation.
Whenever an exporter concludes an agreement for the export of software, it will submit a copy of the same to the area office for information.
Each exporter will submit a monthly statement of his exports/earnings in the prescribed form along with the Export Proceeds Realization Certificates issued by the Authorized Dealer through which the value of exported software is repatriated to Pakistan.
It is permissible for exporters of software to retain amounts upto 35% of their export earnings in Special Exporters Foreign Currency accounts opened with the Authorized Dealers exclusively for payment of commission/discount to the overseas agents/buyers and to use the same to meet other expenses such as promotional publicity, import of Hardware/Software, foreign consultant’s fee etc.
These instructions provide guidelines for registration of exporters with the concerned Area Office of the Foreign Exchange Operations Department, SBP-Banking Services Corporation and realization & retention of the proceeds of such exports in foreign currency accounts.
SBP is considering reviewing the instructions relating to export of software so as to facilitate exporters by removing hurdles/impediments, if any, to enable them to enhance their exports.
IT Exports Potential
If the IT exports stands at $2.8 billion per annum, the industry could grow gradually to achieve the set target of $6 billion per annum by 2020, provided concrete measures are adopted in to support the target.
The government should not only build IT parks but it should continue to encourage start-ups of IT and its related services. The extended tax holidays for next two years will benefit IT companies but they should also be provided specialized schemes of bank’s loans as if different sectors such as agriculture and textile.