IT Sector Disappointed as Budget Fails to Address Key Demands

The Pakistan Software Houses Association (P@SHA) has expressed its disappointment with the recent budget, stating that it neglects two critical and long-standing needs of the IT sector: a clear and equitable taxation system for remote workers, and the continuation and expansion of the existing tax benefits for formal IT exporters.

In a statement released on Wednesday, the association noted that the industry’s repeated requests for a stable, 10-year tax policy framework—essential for enabling companies to invest, expand, and compete globally—have been overlooked.

P@SHA characterized this omission as a “significant oversight” and a “major setback” for an industry vital for export-driven growth, youth employment opportunities, and digital advancement.

The association emphasized that for a sector employing over 600,000 young individuals and recognized as a crucial source of skilled talent, “this budget represents not only a disappointment but also a considerable challenge.”

According to P@SHA, highly compensated remote workers engaged by international firms, often functioning as full-time employees, remain largely outside the tax net.

Conversely, Pakistani-based companies that employ and train local talent face taxation, audits, and excessive regulation.

“This dynamic increases the cost of local hiring while simultaneously encouraging capital flight and informal employment arrangements.”

P@SHA added that “talent retention is declining, export revenues are being held abroad, and established companies are losing value.”

Proposed Solution

P@SHA expressed frustration with the government’s inaction, especially considering the simplicity of their proposed remedy: classifying individuals earning over Rs 2.5 million annually from fewer than three foreign sources as remote workers.

They believe this measure would impact only the top 5% of earners, avoiding negative consequences for freelancers and small remitters.

The association also urged the government to prolong the current tax structure for exporters.

They cautioned that the $700 million in investment commitments obtained through the Digital Foreign Direct Investment (DFDI) initiative are at risk due to inconsistent tax policies, asserting that “foreign investors will be reluctant to invest in a country where regulations change annually.”

P@SHA warned that the budget “sends a message that Pakistan’s digital economy is not yet ready to be taken seriously, with potentially devastating consequences. Pakistan’s IT sector, the fastest-growing and most competitive industry, risks losing its momentum.”

The association anticipates that export growth will stagnate, jobs will be lost, and the government’s objective of reaching $25 billion in IT exports will become unattainable.

P@SHA stated that Budget 2025, as it currently stands, directly jeopardizes the survival of the formal tech ecosystem by penalizing compliance, discouraging investment, and promoting informality.

The association cautioned that “this is no longer about incentives, but about safeguarding one of Pakistan’s few economic success stories, emphasizing that the stakes are exceptionally high.”

Positive Performance

This warning is issued alongside a report indicating that Pakistan’s IT sector has become a notable positive element within the country’s otherwise struggling economy, with exports projected to reach approximately $3.7 billion in FY2025, driven by a predominantly young, tech-savvy population.

The report highlighted that IT exports in the first ten months of fiscal year 2025 reached $3.1 billion, demonstrating a robust 21% year-on-year (YoY) increase.

Notably, April 2025 witnessed monthly IT exports of $317 million, a 2% increase YoY, although a 7% decrease month-on-month (MoM). This figure remains above the 12-month average of $314 million, marking the 19th consecutive month of YoY export growth since October 2023.

Looking forward, experts forecast continued growth in Pakistan’s IT sector, projecting a 10-15% expansion in FY25, reaching $3.5–3.7 billion in exports. The government’s ‘Uraan Pakistan’ economic plan aims for $10 billion in IT exports by FY29, implying a compound annual growth rate (CAGR) of 28%.

However, the report also cautioned that structural problems persist. Freelancers, who significantly contribute to digital exports (estimated to exceed $500 million in FY25), face challenges like limited access to international payment systems, unclear taxation policies, and a lack of specialized banking services. Additionally, the regulatory environment for emerging fintech, including cryptocurrencies and digital assets, is still developing.