P @SHA has urged the government to introduce a fair and rational taxation system to support the growth of the country’s IT sector. The association presented its budget proposals for 2025-26, calling for major reforms in the tax structure to create a level playing field for local IT companies and professionals.
One of the primary concerns raised by P@SHA is the disparity in taxation between local salaried employees and remote workers. Currently, local employees are subject to an income tax rate of up to 35%, whereas remote workers employed by IT firms only pay 1% tax. This imbalance, the association argues, has led to talent migration and has made it difficult for local companies to retain skilled professionals. To address these issues, P@SHA Chairman Sajjad Mustafa Syed proposed that FBR streamline its tax policies for the IT industry. The association recommended that FBR appoint dedicated commissioners to handle IT-related tax matters. This move would help prevent unnecessary tax notices and ensure that tax officers develop a deeper understanding of IT-specific taxation, leading to more informed decisions and better administration of tax policies for the industry.
P@SHA also demanded the restoration of FTR for ITeS exports for the next 10 years. The association believes that policy continuity and predictability are crucial for investor confidence. Under the current tax system, IT companies already pay 0.25% in FTR on export earnings. However, they are also subject to an additional 5% tax on corporate debit card transactions linked to Exporters’ Special Foreign Currency Accounts (ESFCA). P@SHA has urged the government to exempt these transactions from the extra tax to prevent double taxation and encourage foreign currency inflows. Additionally, the association has called for the removal of withholding tax and excessive charges on foreign currency retention accounts. P@SHA argued that IT companies should not be discouraged from holding and using foreign currency earnings legitimately. Currently, account holders face additional WHT charges for using foreign currency debit cards, despite the fact that foreign income is already exempted under the FTR regime.
To boost technological advancement, P@SHA has also proposed a tax deduction scheme for R&D investments in the IT sector. The association suggested allowing companies to claim deductions of up to 30% on R&D expenditures, which would encourage firms to develop innovative solutions and compete in the global market. It emphasized that Pakistan’s IT industry heavily relies on adapting existing technologies rather than creating new ones, which limits its long-term growth potential. Establishing a robust domestic innovation ecosystem would be key to securing a stronger position in the international IT landscape. Another major concern highlighted by P@SHA is the double taxation issue on software due to conflicting tax policies between federal and provincial authorities. At the federal level, software is treated as a good, while provincial tax authorities classify it as a service. This discrepancy has created unnecessary taxation burdens on software developers and IT businesses. P@SHA has urged the government to resolve this conflict and ensure a uniform tax treatment for software products.
The association further noted that laptops, computers, and other IT equipment are currently taxable, adding an additional financial strain on IT professionals and businesses. Given the crucial role of technology in the sector’s expansion, P@SHA has asked the government to remove taxes on essential IT hardware to facilitate greater access to modern tools and enhance productivity. As Pakistan’s IT industry seeks to grow its global footprint, P@SHA’s proposed reforms aim to create a more business-friendly tax environment, attract foreign investment, and encourage technological innovation. With the upcoming federal budget for 2025-26, industry stakeholders now await the government’s response to these critical demands.
