MoITT Concerned After FBR Abolishes Tax Exemption Regime

The Ministry of Information Technology and Telecommunication (MoITT) on Monday conveyed serious concerns to the Federal Board of Revenue (FBR) over abolishing the tax exemption regime and replacing information technology/ IT-enabled Services (ITeS) with tax credit regime while saying it can result in flight of capital and brain drain in the country.

On the direction of Federal Minister for IT & Telecom and recommendations of Prime Minister’s Taskforce on IT & Telecom, Secretary IT Shoaib Ahmad Siddiqui along with Member (IT) MOIT, Managing Director Pakistan Software Export Board, Chairman PASHA and Chair IT Sub-taskforce called upon Chairman Federal Board of Revenue (FBR) Asim Ahmad and his team in FBR Headquarters on Monday.

Chairman Federal Board of Revenue (FBR) Asim Ahmad assured the IT sector maximum facilitation after transfer of tax exemption to tax credit regime from July 1, 2021.

This assurance has been given by the FBR Chairman during the meeting of the Secretary (IT) Ministry of IT & Telecom and other senior officials with the tax authorities at the FBR House.

Official sources told Propakistani that the tax authorities have informed the IT delegation, “I guarantee you that I will make sure that all emerging issues of tax credit regime would be addressed by the FBR”. The FBR will make the tax credit system very simple for IT companies.

The FBR will also address the issuance of notices to the IT companies, Chairman FBR informed the delegation.

Meanwhile, Finance Bill (2021) from July 1, 2021 would amend the relevant federal tax laws to grant the status of the industry for the IT sector, cut in advance income tax on mobile phone users from 12.5 percent to 10 percent, reduction in the federal excise duty from 17 percent to 16 percent and reduction in the services tax on telecommunication companies from 8 percent to 3 percent.

A relief package for the telecom sector is expected in the coming budget. The package includes the status of industry for this sector, cut in advance income tax on mobile phone users from 12.5 percent to 10 percent, which will be further reduced to 8 percent in 2022-23, federal excise duty will be brought down from 17 percent to 16 percent, Rs. 250 on SIM card has been abolished and services tax on telecommunication companies reduced from 8 percent to 3 percent. However, all these incentives would be applicable from July 1, 2021

MOIT leadership presented a detailed Industry Impact Analysis as a result of recent announcements by FBR to abolish the Tax Exemption regime and replacing it with the recently announced Tax Credit Regime.

Barkan Saeed Chairman PASHA and Syed Ahmed Chair IT Sub-taskforce raised serious concerns on FBR’s unanimous decision of taking IT/ITES Sector into tax credit regime, without taking the Ministry of IT and IT Industry on board.

Secretary IT highlighted this Government’s remarkable achievement in the form of IT/ITES Export figures as Pakistan expects to reach a landmark of USD 2 billion export remittances this year. He emphasized that IT Sector is on the high priority agenda of the Prime Minister and MOIT is leading this agenda to implement it with all available resources to ensure facilitation to IT/ITES and Freelance sectors in the country.

It was shared that all the hard work will be reversed as policy inconsistency never sends a good signal to the domestic and international investors. The forum was apprised that immediate reaction of IT/ITES and Freelance sector, to this policy change, can be in form of a flight of capital and brain drain in the country.

Furthermore, the MOIT team also presented case studies of MNCs, Pakistani IT Companies and freelancers to sensitize the FBR Policy team about recent tax notices and wrong interpretations by Tax Commissioners. It was emphasized that IT/ITES and Freelance sectors are only surplus services sector with a highly positive impact on the job market and economic growth in the country.

Tax consultant also highlighted complexities around extra documentation IT/ITES Sector and Freelancers have to face due to tax credit regime which can result into increased cost of doing business for new entrants especially.

Chairman FBR assured that concerns of IT/ITES Sector will be addressed. FBR and MOIT agreed to conduct joint workshops for IT/ITES and Freelance sector to facilitate the industry in tax matters.