Pakistan Software Houses Association (PASHA) has issued a strong warning regarding the 2025-26 federal budget, describing it as a significant setback for the IT sector. In an official statement, PASHA criticized the government for ignoring two major concerns: the absence of a defined taxation framework for remote workers, and the discontinuation of the favorable tax regime for formal IT exporters. The association said these omissions are a serious blow to the country’s fastest-growing and most export-ready sector.
PASHA had consistently urged the government to introduce a stable 10-year tax policy to enable long-term planning, international competitiveness, and investor confidence. However, it stated that this demand has once again gone unaddressed, calling the move “a quiet but decisive blow” to an industry that employs over 600,000 skilled young professionals and has been a consistent source of export growth and digital progress.
According to PASHA, a major concern lies in the taxation disparity between remote workers employed by foreign companies and local IT firms. High-income individuals earning from overseas remain largely untaxed, while companies operating within Pakistan that invest in training and employ local talent are over-regulated and audited. The association believes this uneven framework is leading to capital flight, a rise in informal contracts, and a significant decline in local talent retention.
To resolve this imbalance, PASHA proposed a simple classification for remote workers: any individual earning over Rs 2.5 million annually from fewer than three foreign sources should be taxed accordingly. This approach is designed to target only high earners while protecting freelancers and small-scale remitters from undue burden.
The association also raised concerns about the government’s failure to extend the current tax incentives for exporters. It warned that over $700 million worth of investment commitments under the Digital Foreign Direct Investment (DFDI) initiative are at risk. PASHA said that international investors require continuity in policy to stay engaged, and frequent regulatory shifts deter serious investment.
According to the group, the current budget sends a negative signal about Pakistan’s digital economy to global markets. It argued that the consequences could include stagnant export growth, reduced job creation, and long-term damage to one of the few thriving sectors in the national economy.
Industry insights from i2i indicate that Pakistan’s IT sector has remained a bright spot amid broader economic struggles. IT exports for FY2025 are projected to reach $3.7 billion, driven by sustained demand and a predominantly young digital workforce. In the first ten months of FY2025, exports reached $3.1 billion, reflecting a 21% year-on-year increase. April 2025 alone saw $317 million in IT exports, marking the 19th consecutive month of year-on-year growth.
Still, structural challenges persist. Freelancers, who contribute significantly to digital exports with estimates crossing $500 million this fiscal year, continue to face limited access to international payment systems, regulatory ambiguities, and inadequate banking services. Furthermore, the policy environment around fintech and digital assets remains underdeveloped, contributing to overall uncertainty in the tech landscape.
PASHA stressed that the issue is no longer just about incentives. The current fiscal stance, it said, threatens the very existence of a formal IT ecosystem that has delivered consistent results. Without immediate course correction, the goal of reaching $25 billion in IT exports will remain unrealized, and one of Pakistan’s most promising economic avenues could lose its momentum entirely.
