By Shamim Rajani, COO Genetech Solutions
From Silicon Valley to Saddar, the tech industry is undergoing a seismic shift. Global inflation has disrupted funding cycles, hiring patterns, and consumer behavior. In this blog, the author explores the current state of the tech economy, with a dual focus on global investment patterns and Pakistan’s FY2025–26 tax reforms. She analyzes how recent budgetary policies—such as reduced income slabs, digital taxation, and compliance mandates— are affecting entrepreneurs, freelancers, and tech companies alike. With rich data, local insights, and forward-looking strategies, this piece offers an essential read for anyone navigating the future of tech under economic pressure.
Since 2023, inflation has cast a long shadow over global economies, affecting industries across the board—and the tech sector has been no exception. Once considered a resilient and fast-growing industry, tech is now grappling with slowed investment, shrinking consumer demand, and cautious hiring trends. From Silicon Valley to Singapore, the ripple effects of inflation have prompted difficult decisions for startups and tech giants alike.
In Pakistan, the tech industry faces a dual challenge: battling global inflationary pressures while also navigating local economic instability and policy hurdles. As funding dries up and operational costs soar, many companies are downsizing or shutting down, while freelancers and remote workers are finding new opportunities abroad—often aided by favorable tax policies. This blog explores the global and local impact of inflation on the tech ecosystem and why it’s more important than ever for companies to stay lean, agile, and future-focused.
Global Tech Industry Slowdown Amid Inflation (2023–2025)
The tech sector has seen a marked pullback from 2023 into 2025 as high inflation and rising interest rates curbed investment and consumer spending. Below, we detail each trend with up-to-date data and analysis.
Venture Capital and Funding Slowdown
Venture capital markets cooled sharply as investors became more cautious with global VC funding dropping by 42% in 2023 (to about $248.4 billion, the lowest since 2017). Crunchbase similarly reports that 2023 startup investment hit ~$285 billion, a 38% drop from $462 billion in 2022. Notably, deal volume also plunged (30% YoY drop to ~29,300 deals in 2023), and late-stage rounds shrank – the median late-round size is down more than 50% since 2021. The result was the lowest startup funding in half a decade and near “pre-pandemic” levels.
Crunchbase notes the slump softened in 2024: total VC investment in 2024 (~$314 B) was roughly flat (+3%) vs. 2023 as AI-driven deals resumed, but remained far below 2021 highs. The overall picture remains clear: inflation-induced uncertainty has choked off the easy funding of the boom years.
Layoffs and Hiring Freezes in Tech
Tech firms dramatically cut their workforce to conserve cash. Tech layoffs have been widespread, with over 61,220 workers laid off in 2025 till yet, and major players like Amazon, Google, and Meta scaling slow on hiring and R&D. Independent trackers and press reports show mass layoffs across the sector in 2023–2025:
- TechCrunch (May 2025): Over 150,000 tech jobs were cut in 2024 across ~549 companies.
- Layoffs.fyi: The tech-layoff tracker confirms roughly 165k layoffs in 2023 and 153k in 2024.
These “cost discipline” moves by tech companies are a direct response to slower revenue growth amid inflation: with customer spending weaker, firms retrenched on payrolls.
Wage Stagnation and Talent Churn
With revenues under pressure, tech wage growth also stalled. Recent salary surveys show raises barely kept pace with inflation. Dice’s 2025 Tech Salary Report finds the average tech salary rose only 1.2% in 2024. (The same report notes tech pros are “unprecedentedly dissatisfied” with pay.) Even as top AI talent saw premiums, the typical software/IT role saw almost flat nominal wages.
This squeeze is driving employee turnover. LinkedIn’s 2024 Workforce Confidence Index found 47% of tech/media workers plan to job-hop this year – up sharply from prior years – often citing pay and growth opportunities. (By contrast, only ~29% had planned a change in 2023.) Surveys also show a drop in expectations for raises: only 55% of tech workers got a raise in 2023 (vs. 59% industry average). In short, stagnant real wages under inflation have made tech employees restless, even as companies freeze budgets.
Consumer Demand Weakens for Tech Products
On the demand side, inflation has been seen to cut into consumer and enterprise tech spending. Concrete sales data bear this out. IDC/Stocklytics reports global PC shipments in 2023 fell to ~242 million units, a 15% drop from 2022 – the lowest volume in 15 years. Consumers simply deferred laptop/PC purchases due to budget constraints.
The 2022-2023 era was marked by consumers tightening belts on tech hardware and delaying upgrades, and enterprises are similarly cautious. However, 2024 brought a shift. Inflation eased in many major economies, and consumer confidence began to stabilize. According to Canalys, global PC shipments grew modestly by 3–4% in 2024, and smartphone sales rebounded by 5–7%. Tablet demand even saw a 9% jump as hybrid work models continued to evolve. While this signals recovery, the growth is still far from pre-pandemic highs.
The U.S. economy’s 0.3% contraction in Q1 2025 indicates renewed caution, as macroeconomic uncertainty (e.g., global conflicts, elections, and trade disruptions) weighs on buyer sentiment again. Cautious consumer behavior is reflected in how the general consumer spending showed a very modest rise of 1.8% in Q1. The overarching economic environment, characterized by trade tensions and cautious consumer behavior, suggests that, like any industry, the tech industry’s recovery too remains fragile and susceptible to broader macroeconomic challenges.
Pakistani Tech Sector
Startup Funding & Ecosystem
Pakistan’s tech scene has likewise cooled. After booming in 2021, funding collapsed – local startups raised only ~$72–75 million in 2023 (down ~70% from 2021–22). A Rest-of-World report notes the ecosystem “is struggling due to a funding crunch, company closures, sky-high inflation, and a prolonged political crisis”.
In 2022–23 many well-funded startups began laying off staff or shutting down entirely. For example, an e-commerce firm Airlift closed and fired 31% of workers, Retailo and others trimmed payrolls, and funding fell “below pre-Covid levels by Q4 2022”.
Despite the government’s lofty “Startup Pakistan” and “Digital Pakistan” slogans, the FY 2025–26 budget introduced no dedicated startup incentives—no tax holidays, no seed-fund grants, and no regulatory sandboxes to trial new tech models. As Rabia Azfar of The Express Tribune observes, references to digitization and entrepreneurs feel like “afterthoughts,” with no meaningful budgetary or institutional commitment to expand basic digital infrastructure—such as rural broadband or cloud procurement frameworks—crucial for early-stage ventures to scale domestically and abroad.
Local Company Impacts
Even major tech companies faced cutbacks. In early 2023 Daraz (Alibaba’s Pakistan arm) cut ~11% of its 1,100 staff, explicitly blaming “soaring inflation” (along with supply chain and tax pressures) for slowing growth. Similarly, cloud-kitchen startup Byte axed ~30% of its 97-person team to refocus operations.
Overall, many firms report reduced profitability and paused expansion as input costs rise – for example, Daraz’s CEO urged cost-saving and simplification measures to “improve profitability and save costs”. One Pakistani tech worker described the mood: “things were changing, companies were folding, VC funding was drying up, there were hiring freezes.”
New Tax Slabs and Corporate Relief
The Finance Act 2025 overhauled income-tax slabs for salaried individuals—crucial for tech employees—by cutting most rates by 1–2 percentage points. For instance, the 600 K–1.2 M slab now attracts 2.5% (down from 5%), 1.2 M–2.2 M is 11% (was 15%), and 2.2 M–3.2 M is 23% (was 25%).
Corporate entities also saw modest relief: the “super-tax” surcharge on profits between Rs 200–500 million was trimmed by 0.5%, signaling government intent to encourage reinvestment by mid-sized tech firms.
Digital Taxation and Compliance Expansion
The FY2025–26 budget marks a decisive shift toward formalizing Pakistan’s digital economy by layering new levies on online transactions and dramatically expanding compliance requirements. Under the Digital Presence Proceeds Tax Act, 2025, any foreign or domestic digital vendor earning over PKR 1 million annually from Pakistani users must now face a 5% withholding tax on gross proceeds—covering everything from cloud services and streaming to e‑learning and consultancy—and remit these deductions at source via banks or payment gateways, reported quarterly to the FBR. Simultaneously, an 18% VAT has been imposed on all e‑commerce marketplaces (e.g., Daraz, OLX, Zameen), effectively closing long‑standing sales‑tax loopholes and standardizing treatment of online intermediaries.
Beyond taxation, the budget accelerates a digital compliance overhaul. The FBR expanded mandatory electronic invoicing to both corporate and non‑corporate registered persons—requiring integration with FBR’s real‑time e‑invoicing system by 1 June 2025 for corporates and 1 July 2025 for non‑corporates—to enable instant invoice reporting, unique QR‑coded receipts, and AI‑powered risk audits EYDawn.
To ease this transition, Pakistan Revenue Automation Limited (PRAL) now offers free integration support for taxpayers, but the combined burden of system upgrades, compliance staff, and potential penalties for non‑compliance could outstrip their administrative bandwidth. While the move promises greater transparency and a broader tax net, entrepreneurs must now factor in these new digital‑tax costs and operational demands when planning product launches, platform partnerships, or cross‑border service models.
Companies vs. Freelancers
Pakistan’s tax policy heavily favors freelancers (especially PSEB-registered IT exporters) over domestic IT firms. Under the current Final Tax Regime (FTR), PSEB-registered IT exporters pay only a 0.25% withholding tax on export revenues.
“Remote workers” (independent IT contractors paid from abroad) similarly face just ~0.25–1% final tax on their income. By contrast, local IT companies and their salaried staff pay normal income tax rates (up to ~35%).
This creates a stark gap: one analyst notes remote IT contractors earn 3× what a domestic employee gets for the same work, at near-zero tax. As P@SHA warned, this disparity (“salaried 5–35% vs. remote 0.25–1%”) is already driving “talent migration, brain drain, and difficulties for local companies”.
Indeed, many mid- and senior-level Pakistani tech professionals have left corporate jobs to take up remote freelance roles abroad. Industry leaders argue this could “destroy” Pakistan’s growing IT sector unless taxes on local firms are eased.
Shift to Freelancing
The net effect is a boom in freelancing at the expense of traditional IT jobs. Pakistan now has an estimated 1.5 million freelancers in tech and related fields, and freelance ICT exports contribute on the order of US$1 billion+ per year. This surge is widely seen as a “digital lifeline” amid broader economic turmoil.
But experts caution it reflects a flight from local firms: “In my 15 years, I’ve never seen people looking to leave…the past two years have just been crazy,” says one expatriate Pakistani manager.
As fiscal compliance increases, some freelancers may be drawn into the formal tax net through digital payment tracking and enforcement mechanisms introduced in the 2025–26 budget. Industry observers say clearer tax slabs and incentives are urgently needed to preserve the viability of remote work while reducing brain drain.
In short, high inflation and an uneven tax policy are incentivizing talent to go it alone, disturbing the human capital of Pakistan’s tech companies.
What Now?
The global tech industry—and Pakistan’s in particular—is facing a critical inflection point. Inflation has not only tightened funding pipelines and slowed consumer demand, but also disrupted hiring and talent retention. For Pakistan, the situation is compounded by political instability, policy imbalances, and a stark tax disparity that favors freelancers over local firms.
While short-term trends indicate modest recovery in global tech—buoyed by sectors like AI and hybrid work—the path forward is anything but certain. For Pakistani companies, this moment demands a strategic rethink: one that emphasizes lean operations, tax advocacy, and talent retention. Meanwhile, the rise of freelancing highlights an urgent need to restructure domestic policies to ensure sustainable tech sector growth.
For business owners, adapting quickly to fiscal and operational shifts means investing in smarter infrastructure, leaner teams, and future-ready digital solutions that can weather both inflation and disruption.
About the Author
Shamim Rajani is the Partner & COO at Genetech Solutions, an award-winning tech company
with a global footprint in the USA and Pakistan. Under her leadership, Genetech is redefining
digital transformation with user-centric solutions that don’t just meet industry standards—they
set them. For over 20 years, Genetech specializes in creating bespoke web and mobile
applications that put the end user first, combining intuitive design with powerful technology. Shamim actively mentors startups, serves on university advisory boards, and frequently speaks
on topics like upskilling, agile ecosystems, and diversity in tech—driven by her passion for
women’s empowerment.
References:
Startup Genome | Carta | CIO Dive | TechTarget | TechCrunch | Arab News | Rest of World | Profit | Profit | Tribune | Brecorder | Tribune | Tribune | PwC | Tribune | Tribune | LinkedIn
