Pakistan Software Houses Association has formally urged the federal government to close a tax disparity that is incentivising senior IT professionals to reclassify themselves as remote workers to benefit from significantly lower tax rates, a structural problem that is simultaneously draining talent from Pakistan’s corporate IT sector and reducing overall tax revenue from the industry ahead of the upcoming federal budget for fiscal year 2026-27.
The association’s position centres on a fundamental inequality: remote workers, often paid in foreign currencies, face lower tax burdens compared to domestic IT employees, incentivising companies to reclassify senior staff as remote workers and leading to inefficiencies and tax revenue loss. PASHA has proposed a competitive flat tax rate of 5 percent for payroll at PASHA and PSEB-registered IT companies as a way to equalise the treatment between salaried employees and remote workers without eliminating the incentive structure that has supported Pakistan’s export growth.
The disparity is stark. Salaried employees in corporate IT firms are taxed under standard income tax slabs ranging from 5 percent to 35 percent depending on income, while remote workers pay only 0.25 percent when registered with PSEB or 1 percent if unregistered. PASHA Chairman Sajjad Mustafa Syed has argued that this disparity has led to talent migration, brain drain, and significant difficulties for local companies in retaining skilled IT and technology professionals, with senior employees increasingly restructuring their arrangements to qualify for the lower remote worker rate rather than remaining on formal payroll.
The urgency of PASHA’s representation is compounded by the imminent expiry of the Final Tax Regime for IT and IT-enabled services exports. The Final Tax Regime, which allows for a reduced withholding tax rate of 0.25 percent on export proceeds for entities registered with PSEB, is set to expire on June 30, 2026, meaning the budget for fiscal year 2026-27 represents the last opportunity for the government to either extend the regime or replace it with a new framework before the current incentive structure lapses entirely. PASHA has called for the government to restore a 10-year tax exemption under the Final Tax Regime from 2025 to 2035 to ensure predictability, continuity, and investor confidence, arguing that the IT sector requires stability and consistency to maintain global competitiveness, increase exports, and create employment opportunities. With Pakistan’s IT exports projected to exceed $4.5 billion this fiscal year and the government targeting $15 billion by 2030, the tax framework governing the sector over the next decade will be one of the most consequential policy decisions the budget contains.
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