P@SHA Advocates for Extension of Final Tax Regime to Boost IT Sector

KARACHI: The Pakistan Software Houses Association (P@SHA) has appealed to the government to prolong the final tax regime (FTR) for IT and IT-enabled services (ITeS) for a decade, aiming to bolster export growth and draw in international investment. The current FTR is slated to end on June 30, 2026 and enables a reduced withholding tax of 0.25% on export revenue for companies registered with the PSEB.

P@SHA Chairperson Sajjad Mustafa Syed presented these proposals as crucial components of the association’s detailed budgetary recommendations for the upcoming Federal Budget 2025-26.

The proposals highlight structural overhauls designed to improve foreign direct investment (FDI), export competitiveness, job creation, and the overall advancement of Pakistan’s IT industry.

Syed emphasized that prolonging the FTR until 2035 would provide assurance, stability, and boost investor confidence, especially given the industry’s current phase of rapid growth, geographic expansion, and escalating global demand for Pakistani tech professionals.

“Maintaining the FTR will streamline tax compliance for IT enterprises, empowering exporters to reinvest in business expansion, innovation, and digital transformation,” he stated. “Consistent policies and fiscal incentives are vital for establishing Pakistan as a dominant IT force in the region.”

He further mentioned that competing nations in the region provide extended tax benefits to entice IT-related FDI, and Pakistan should implement similar strategies to maintain its competitive edge.

According to P@SHA, a 10-year tax holiday aligns with the objectives of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision for significant growth in IT exports.

Syed also voiced concerns about income tax inequalities within the sector, highlighting that salaried employees in IT firms currently face income tax rates from 5% to 35%, whereas remote workers pay between 0.25% and 1.0%.

He cautioned that this disparity contributes to the loss of skilled workers and makes it challenging for local firms to retain talent, advocating for substantially reduced income tax rates for salaried IT professionals to fully unlock the sector’s potential.

Another significant proposal from P@SHA focuses on incentivizing the repatriation of foreign exchange. Syed criticized the existing Income Tax Ordinance, 2001, which levies a 15% withholding tax on payments to non-residents for services rendered, particularly when double taxation agreements are absent.

To address this, P@SHA has suggested an exemption from withholding tax on payments originating from Exporters’ Special Foreign Currency Accounts (ESFCA). Syed clarified that this exemption would apply to all IT service categories, facilitating the influx of foreign earnings into Pakistan.

P@SHA’s budgetary proposals underscore the association’s broader effort to cultivate a sustainable and globally competitive digital economy, built on consistent policies, tax reforms, and regulations that encourage investment.