IT/ITES Exports could dip as a Result of Tax Exemption Removal: P@SHA

P@SHA Hosts Discussion: Impact of Tax Credit System on IT Sector

The panelists discussed the government’s sudden policy change on Income Tax Exemptions in a recent webinar as part of the “Candid with P@SHA” series hosted by Pakistan Software Houses Association for IT & ITeS (P@SHA) on “Impact of Tax Credit System on the IT Sector”. Naseer Akhtar, CEO of InfoTech, Sadia Nazeer of KPMG, and Sharif ud din Khilji of Khilji and CO were among the notable webinar panelists.

Increased requirements from this ordinance will result in higher compliance costs for startups, MSMEs, and small IT/ITeS exporters, as well as increased harassment by FBR commissioners, according to the panelists. Due to fears of tax credit removal during the FBR audit process, many export-oriented companies with offices in other countries will refrain from sending any additional export remittance to Pakistan and will only send payroll expenses here, according to the panelists.

This abrupt shift in policy in response to requests from the International Monetary Fund (IMF) will have a negative impact on the IT sector’s growth and expanding exports. Such policy discrepancies send a deterrent message to businesses and investors interested in entering Pakistan. This action has demonstrated to investors that any policy benefiting a particular sector can be changed at any time without considering the sector in question.

IT & ITeS is currently Pakistan’s fastest expanding sector, with a growth rate of more than 40% year on year. Without any significant government incentives, such as cashback on exports, subsidized electricity tariffs, low-interest loans, and so on, which have been granted to other industries for decades, the sector has been able to achieve this. According to estimates, a worker’s average annual yield in traditional sectors is roughly $600, whereas a knowledge worker’s annual yield in the IT/ITES industry is more than $20,000.

While other regional countries provide incentives to their IT sectors – Bangladesh offers a 10% cash reward on IT/ITeS exports despite tax exemptions, China and India have Special Economic Zones dedicated to the IT and ITeS sector where numerous incentives, including tax reliefs, have been available for many years – the government of Pakistan does not.

It is past time for the government to recognise that the IT sector would be the only sector capable of resolving the trade deficit, creating jobs for Pakistan’s massive population, and transforming the country into a knowledge economy. With its potential for multifold export development, it is the only sector that can save the country from more IMF programmes. If favourable policies and incentives are not implemented, exports will only expand at a very modest rate, and a substantial amount of money will be stashed outside of Pakistan.

Source: P@SHA