To ensure business, the IT sector has advocated an automated tax system for the IT/ITes sector.
The federal government has received proposals from the Pakistan Software Houses Association (P@SHA), which has issued a report on the tax analysis of Pakistan’s IT industry. P@SHA advocated an automated tax system and the creation of a single point of contact for the IT sector’s taxation in the study.
The federal government has been requested in the proposals to name exclusive tax commissioners for the IT and ITes industry.
P@SHA claims that FBR ought to propose commissioners for the IT and ITeS industry. These commissioners ought to be in charge of helping IT businesses with any FBR-related concerns and resolving any problems they may be having.
These exclusive tax commissioners ought to be appointed initially for Islamabad, Karachi, and Lahore, three important cities. Additionally, it is advised that an IT-specific wing be created at FBR for the convenience of the IT enterprises.
The federal government should permit IT and ITeS enterprises to maintain 50% foreign currency with simple and effective inflow and outflow, according to the guidelines. P@SHA estimates that SMEs make up 90% of the IT sector, and their largest difficulty is operating efficiently and affordably. Accelerating the process of creating Special Technology Zones is necessary.
A high-level commission to settle tax disputes involving IT corporations has been requested by the federal government. P@SHA asserts that the abrupt regulatory changes, particularly those pertaining to the taxation system, cause uncertainty and anxiety in the ecosystem.
The expense of doing business, compliance operations, and confidence are all weakened by unwarranted notices from federal and provincial tax agencies and authorities. Such a move by the tax authorities deters unregistered businesses from doing so, which hinders the expansion of the IT sector.
P@SHA has also requested that the federal government end the practise of taxing IT twice: once at the federal level and once at the provincial level. In all cases, the GST on energy should be eliminated. According to the research, tax harmonisation should be promoted among the provinces and federal agencies. Taxes on domestic services should ideally be lowered to 5% with adjustment.
It has suggested that the government implement a sales tax return on electricity, gas, and services that are used as inputs to produce finished goods that would be exported. They claim that the Export Facilitation Scheme 2021 offered the textile industry a comparable incentive, allowing textile businesses to apply for reimbursements for the power, gas, or other services needed to produce exported items.
The IT sector can benefit from tax rebates on consumed electricity and gas because it offers export services. Currently, businesses must pay both the federal board of revenue and the provincial revenue authorities as a result of the GST on electricity.
P@SHA has advocated for the repeal of the dividend tax, citing it as a barrier to sole proprietorship and AOP businesses becoming corporations. The group claims that the present tax rate on dividends is 25% (or 15%, depending on the kind of taxable entity), which deters businesses from bringing money into Pakistan.
The removal of the minimum tax under the annual income tax has also been advocated by P@SHA. Companies are required to pay a minimum tax of 3% in addition to the regular tax on yearly income. After the Financial Act FY2022-2023, the income is subject to an extra super tax. The minimal tax should be eliminated because it is an extra expense.
The chairman of P@SHA, Muhammad Zohaib Khan, claims that the IT & ITeS sector is a fascinating junction with the potential to attract foreign direct investments and billions of dollars in income. It is also the only industry with a trade surplus of 77% in FY22. However, the current development trend cannot continue if important policy issues like the cost of doing business are not resolved.
Uncertainty and worry are caused in the ecosystem by rapid regulatory changes, particularly those connected to the taxation system. The end of tax exemptions in 2022 and the transition from the tax credit system to the final tax system in 2022 will have a greater spillover effect on the development of the IT industry.
He continued, “P@SHA welcomes the ongoing cooperation of the Ministry of Information Technology and Telecommunications (MoITT) and Pakistan Software Export Board (PSEB) for aiding in the advocacy for and implementation of beneficial policies for the industry and building an organised ecosystem.
