Despite a handsome growth of IT exports, the industry is set to miss potential exports worth $3.5 billion for the current financial year 2021-22 for various reasons.
Policymakers and bureaucracy reported handsome growth in IT exports but the country will miss the potential IT exports that were set by the Ministry of Information Technology and Telecommunication (MoITT) and the sector’s exporters.
The exports of IT and IT-Enabled Services (ITeS) surged to $2.2 billion during the 10 months of the current financial year, which may barely touch the $3 billion mark by its end.
IT companies led by the Pakistan Software Houses Association for IT and ITeS highlighted five major reasons behind the loss of the precious foreign exchange through IT remittances.
While the overall growth in the IT/ITeS industry remains, the data shows that the growth rate trend declined this year. The only change this year (from last year) is in the tax regime which has affected potential growth. There was 47 percent growth in the IT/ITeS industry in 2021. Continuing the same growth trend, the IT industry would have crossed $3.5 billion.
Listed below are the top five factors that hindered the planned growth.
Source: P@SHA
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Sudden Change of Tax Regime
The tax exemption was the only incentive given to IT/ITeS industry and was committed until 2025. It was changed to a controversial tax credit regime in 2021. This came as a surprise to the industry. Industry and relevant ministries (MoITT) were not consulted in advance before making this change last year. The current tax credit regime has not been implemented as per the planned commitment. One percent is being deducted by banks, while companies have not been awarded tax exemption certificates even after six months.
The process includes negotiations with field officers, which leads to further delays. The current regime discourages companies from bringing exports to Pakistan and also raises questions about the consistency and continuity of the policies.
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Delayed Cash Reward Distribution and Little Incentive
A cash reward was announced as the first-ever monetary incentive for IT/ITeS industry in 2021 but remains undistributed to date. Additionally, the disbursement of the launched incentive scheme was on the growth rate of IT & ITeS export remittances achieved during FY 2020-2021 as compared to FY 2019-2020.
This strategy to allocate cash reward incentives based on growth instead of total revenue has discouraged a significant number of companies from applying for the scheme because of the low incentive, evident from the applications received this year.
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Special Technology Zone (STZ) Enablement
The Special Technology Zones (STZ) were approved in August 2020 and the Special Technology Zone Authority (STZA) was launched in January 2021. However, it has been two years since the STZs have not been enabled for the existing IT/ITeS industry. With a lack of stakeholder (IT industry) representation in the STZA, the focus has been diluted and not aligned with IT export growth.
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Delay in Implementation of PM Package announced in January 2022
A package was approved and announced by the Prime Minister of Pakistan in January 2022 to ensure the growth of the exports within this fiscal year. However, it remains unimplemented.
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Political Instability and Country Perception
Unlike other industries (with transactional contracts), the IT industry has long-term contracts and is highly dependent on country perception and political stability.
