P@SHA Calls for Policy Stability and Tax Clarity for IT Sector in Upcoming Budget

The Pakistan Software Houses Association (P@SHA) has called on the government to ensure policy stability and tax clarity for the IT and IT-enabled Services (ITeS) sector in the Federal Budget 2025–26. In its budget recommendations for FY26, P@SHA said that as a cornerstone of Pakistan’s digital economy, the IT industry has demonstrated resilience amid economic turbulence, contributing $3.2 billion in exports in FY24, and is projected to close the current fiscal year at nearly $4 billion. It said that forecasts estimate a $15 billion export potential by 2030. Despite these promising numbers, policy inconsistency, ad hoc taxation, and operational challenges continue to undermine investor confidence and economic contributions, P@SHA said. P@SHA said recognizes the constraints posed by Pakistan’s commitments under the IMF program and affirms its role as a responsible economic stakeholder. We are not asking for exemptions that jeopardize international obligations. However, if our practical, fair recommendations are implemented in both letter and spirit, Pakistan’s IT sector can contribute substantially more to national growth, it added. P@SHA said there is a critical need to align tax treatment between employees of IT firms and independent remote workers. It urged the government to formally define remote workers in the Income Tax Ordinance (2001). The proposed classification applies to individuals earning over Rs. 2.5 million annually through foreign remittances or working with fewer than three international clients, taxing them similarly to salaried individuals. P@SHA said this recommendation aims to expand the tax base while leveling the playing field. The current disparity creates an uneven labor market where it’s more cost-effective for global companies to hire Pakistani talent directly rather than through local firms. P@SHA highlighted that the IT sector in Pakistan is still in its formative growth stage. Its export trajectory is closely tied to the health of the domestic market. Policy stability is essential for sustaining the momentum we’ve recently achieved. The recent DFDI event alone resulted in over $700 million in investment commitments—of which $600 million was facilitated by P@SHA. Frequent changes in tax laws—whether related to export incentives, withholding taxes, or other fiscal instruments—discourage long-term investment. The lack of predictability threatens to undo the combined efforts of public and private sector stakeholders, including MOITT, PSEB, SIFC, and TDAP. If investor confidence is shaken, Pakistan risks forfeiting years of progress, including advances in branding, skill development, and digital infrastructure. To remain competitive, our IT industry must be supported just as global counterparts were during their early growth stages. A consistent tax policy is foundational to nurturing an ecosystem capable of attracting capital and retaining high-value investments. We recommend that no changes in the tax structure of the country. Operational ease is critical to industry growth. Pakistan must immediately digitize processes for international capital repatriation to facilitate smoother investment flows. Furthermore, harassment of IT companies by various federal and provincial bodies—including EOBI and tax departments—must end. Threats of office closures and arbitrary notices create a hostile environment that drives businesses offshore. IT firms, especially call centers and BPOs, operate on narrow margins, have service level agreements and cannot afford such disruptions. Legislation must be enacted to shield them from outdated and misaligned labor regulations. Until reforms are complete, temporary exemptions must be provided to IT companies from EOBI and other arcane labor laws. Despite being one of the region’s lowest revenue-per-employee markets, Pakistan’s IT sector employs a massive formal workforce of over 600,000. The sector’s resilience is remarkable, bearing some of the highest input costs, yet continuing to grow. However, this resilience has limits. Without urgent fiscal reforms and consistent policy direction, we risk losing our digital edge to more agile economies, it said.