The Pakistan Software Houses Association (P@SHA) has urged the federal government to ensure policy stability and tax clarity for the country’s growing IT and IT-enabled Services (ITeS) sector in the upcoming Budget 2025–26, warning that inconsistent policies and ad hoc taxation are undermining investor confidence and threatening future growth.
In a detailed statement, P@SHA highlighted the sector’s resilience and potential, noting that IT exports reached $3.2 billion in FY2023–24 and are on track to close the current fiscal year at nearly $4 billion. With appropriate support, the industry could achieve up to $15 billion in exports by 2030, it said.
Despite this promise, operational and regulatory uncertainties are causing concern among investors. “We’re not asking for exemptions that could violate Pakistan’s commitments under the IMF program,” said P@SHA. “But if our fair and practical recommendations are implemented in both letter and spirit, the IT sector can deliver significantly more to national economic growth.”
Aligning Taxes for Remote Workers
One of P@SHA’s key demands is the formal classification of remote workers under the Income Tax Ordinance, 2001. The association has proposed that individuals earning more than PKR 2.5 million annually through foreign remittances or working with fewer than three clients abroad be taxed similarly to salaried employees.
The move, it said, would help level the playing field between local IT companies and freelancers, as well as broaden the tax base. “The current gap makes it cheaper for foreign firms to bypass local companies and hire talent directly, undermining local competitiveness and export revenue.”
Consistency in Tax Laws Crucial
Calling the IT sector “still in its formative stage,” P@SHA stressed that policy predictability is essential to sustain growth. It cited the recent DFDI event, which generated over $700 million in investment pledges, $600 million of which was facilitated by P@SHA, as proof of the sector’s potential when policy conditions are stable.
Frequent tax changes have disrupted investor confidence and risk derailing progress made by the government and private sector stakeholders, including the Ministry of IT, PSEB, SIFC, and TDAP.
Operational Challenges Driving Firms Offshore
P@SHA also flagged the operational difficulties faced by IT firms, particularly harassment from federal and provincial agencies like EOBI and tax departments. Arbitrary notices and the threat of office closures are pushing firms to relocate operations abroad.
Call centers and BPO firms, which operate on thin margins and tight service-level agreements, are especially vulnerable. P@SHA has called for temporary exemptions from outdated labor regulations until long-term reforms are introduced.
Urgent Need for Reforms
With over 600,000 formal employees and some of the region’s highest input costs, Pakistan’s IT sector continues to show growth and resilience—but P@SHA warns this resilience has limits. Without immediate fiscal reforms and stable long-term policies, Pakistan risks losing its digital edge to more agile economies.
“The choice is clear: either become a digital powerhouse or lose the industry’s momentum entirely,” the statement concluded. “This is not a request for special treatment—it’s a strategic investment in Pakistan’s digital future.”
Impose tax on freelancers and i can bet govt will see damagingly sharp decline in remittances. Freelancers near me already created backup plan to bring hard earned money with different channels if govt opt for such move. Why don’t govt go and bring agriculturalists and evaders in tax net?