As Pakistan’s information technology (IT) sector records historic export highs, the Pakistan Software Houses Association (P@SHA) has called on the federal government to extend the concessional final tax regime (FTR) on IT and IT-enabled services (ITeS) exports for an additional ten years—until 2035.
The FTR, which imposes a reduced 0.25% withholding tax on export proceeds of Pakistan Software Export Board (PSEB)-registered entities, is currently set to expire on June 30, 2026, at the end of the upcoming fiscal year (FY26).
In its budgetary proposals submitted for the federal budget 2025–26, P@SHA emphasized that a long-term extension would provide the stability and predictability necessary to sustain Pakistan’s rising export trajectory and attract foreign direct investment (FDI) into the digital economy.
“The continuation of FTR is imperative for sustaining the momentum of export growth and investments in the IT industry,” said P@SHA Chairman Sajjad Mustafa Syed in an official statement.
Highlighting the sector’s growth potential, Syed asserted that the proposed 10-year extension aligns with national priorities, including the objectives of the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision for exponential growth in technology exports.
“IT industry is attracting major investments, witnessing operational expansions and achieving regional diversification in the export markets,” Syed stated.
“A 10-year tax exemption would accelerate digital transformation, boost investor confidence and position Pakistan as a leading IT hub.”
Syed further argued that policy continuity is vital to enabling reinvestment by local IT firms. By retaining a larger share of export revenue, companies can scale operations, drive innovation, and expand globally.
“The continuation of FTR will simplify tax compliance for IT firms and enable exporters to reinvest in business growth, innovation, and digital transformation,” he said.
March 2025: A record-breaking month for IT Exports
P@SHA’s appeal comes amid the IT sector’s strongest monthly performance to date. Pakistan’s IT exports reached an all-time high of US$342 million in March 2025—a 12% increase both year-on-year and month-on-month. This milestone marks the 18th consecutive month of export growth, reflecting policy support, favorable exchange rates, and global demand.
Total exports in the first nine months of FY2025 (9MFY25) now stand at US$2.8 billion, up 24% year-on-year. Analysts expect the full-year total to reach between US$3.5 and 3.7 billion, reinforcing Pakistan’s trajectory toward the ambitious target of US$10 billion by FY2029, as laid out in the government’s ‘Uraan Pakistan’ economic plan.
Contributing to this surge are regulatory reforms by the State Bank of Pakistan (SBP), including a higher permissible retention of export proceeds (50%) in Special Foreign Currency Accounts (SFCAs) and the introduction of the Equity Investment Abroad (EIA) facility for overseas expansion.
Call for broader Tax Reforms to curb Brain Drain
In addition to the FTR extension, P@SHA has urged the government to address income tax disparities that are driving talent out of the country.
“This wide difference in income taxes leads to talent migration, brain drain and the resultant challenges for local companies in retaining skilled IT and tech professionals,” said Syed, referring to the 5–35% tax range on salaried professionals in Pakistan compared to 0.25–1% in several competitor countries.
“The country needs to grossly reduce income tax rates on salaried individuals in IT companies to unlock industry’s full potential.”
Simplifying Cross-Border Payments
Another critical policy recommendation centers on the removal of withholding tax (WHT) on payments made in US dollars to non-resident service providers, especially those engaged in services intended for re-export.
Under Pakistan’s current Income Tax Ordinance (ITO), 2001, such payments can attract a 15% WHT depending on the nature of the transaction and existing double taxation agreements (DTAs). Syed proposed that these payments—when made from Exporters’ Special Foreign Currency Accounts (ESFCAs)—be exempted from WHT to improve ease of doing business.
“The payment system should be made smooth as IT and ITeS exporters sometimes acquire foreigners’ services for the purpose of re-exports to earn foreign exchange for the country,” Syed noted.
“This exemption would apply to all categories of IT services provided and would also encourage the inward repatriation of funds into Pakistan.”
With tech exports accelerating and more firms accessing global markets, industry stakeholders remain optimistic—provided the government ensures long-term tax and policy stability. Analysts at Topline Research continue to favor the sector, with Systems Limited (SYS) named as a top stock pick amid robust earnings projections and expanding digital maturity.
As policymakers prepare the FY2025–26 budget, the IT sector’s message is clear: sustained growth demands sustained support.