Pakistan’s Final Tax Regime rate of 0.25 percent for the information technology sector has been extended through Tax Year 2029 under Section 154A of the Income Tax Ordinance, according to Pakistan IT Industry Association. The extension, confirmed as part of the recently announced Budget 2026-27, gives IT and IT enabled services exporters a longer runway of tax certainty compared to the previous framework, which had only guaranteed the reduced rate through Tax Year 2026.
Under Section 154A, authorised dealers in foreign exchange are required to deduct tax at the time export proceeds are realised from computer software, IT services, or IT enabled services, with the reduced 0.25 percent rate available specifically to companies registered with Pakistan Software Export Board. The provision has functioned as a final tax on export income since it was introduced through the Finance Act of 2022, replacing an earlier 100 percent tax credit regime that had previously applied to the sector. According to Pakistan IT Industry Association, the latest extension addresses a recurring point of concern for the industry, since outsourcing contracts with foreign clients typically run for periods of five to seven years, far longer than the tax certainty the previous framework had offered.
The association explained that before this extension, a foreign client evaluating Pakistan as an outsourcing destination had no guarantee that the reduced rate would continue to apply beyond Tax Year 2026, a level of uncertainty that made it harder for Pakistani firms to be recommended to risk averse procurement teams at international companies weighing long term technology partnerships. With the rate now locked in through Tax Year 2029, Pakistan Software Export Board registered IT and IT enabled services companies can bid on multi year engagements while giving international clients a more credible answer regarding the country’s tax position for the full duration of a contract, addressing what the association described as one of the more practical barriers to winning larger, longer term outsourcing deals.
Pakistan IT Industry Association has previously raised the issue of tax predictability in its budget recommendations to the federal government, arguing that the sector’s competitiveness depends heavily on offering clients long term cost and regulatory clarity, particularly as Pakistan competes with other outsourcing destinations in South Asia and beyond for multi year contracts. The association’s policy submissions have also flagged related issues around the interpretation and retrospective application of Section 154A in previous years, pointing to a broader pattern of engagement between the industry body and federal authorities on shaping the tax framework applicable to IT exports.
Looking ahead, Pakistan IT Industry Association said its position is that the next step should be converting the current time bound extension into a permanent statutory exemption before the framework comes up for review again ahead of 2029. The association’s stance reflects a broader industry push to secure long term policy stability for Pakistan’s IT export sector, which has increasingly positioned itself as a significant contributor to the country’s foreign exchange earnings and a key pillar of the government’s wider digital economy agenda.
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