Sign in Subscribe
Public finance

Pakistan's IT Sector Warns of Exodus to Tax-Friendly Countries

Strategic Insights

— 1 min read

Pakistan's IT sector has issued a stern warning to the government: reform the tax system or risk losing top companies to more business-friendly nations. The warning comes as the federal budget approaches, with the sector's association, the Pakistan Software Houses Association (P@SHA), urging the government to ensure a stable tax policy, support infrastructure, and develop tech skills. Without immediate policy improvements, firms may shift operations to countries like the UAE, Vietnam, or the Philippines, where corporate income tax rates are significantly lower.

Key Takeaways:

  • The Pakistan Software Houses Association (P@SHA) has warned the government that without tax reforms, top companies may shift operations to more business-friendly nations.
  • P@SHA Chairman Sajjad Syed emphasized that inconsistent policies are hurting business confidence and stalling the sector's growth potential.
  • Pakistan's high tax rates, particularly the corporate income tax of 29%, are uncompetitive compared to other regional countries.
  • The sector has shown strong performance, with exports reaching $3.2 billion last fiscal year and expected to hit nearly $4 billion this year.
  • Reaching the target of $15 billion by 2030 is only possible with long-term policy consistency and reforms in taxation, especially to close loopholes favoring remote workers employed by foreign firms over local companies.
  • P@SHA has called on the government to clearly define 'remote workers' in the Income Tax Ordinance to address tax inequality.
  • The IT sector employs over 600,000 professionals and has received over $700 million in recent investment commitments.

Statistics:

  • Pakistan's IT sector exports reached $3.2 billion in the last fiscal year.
  • Exports are expected to hit nearly $4 billion this year.
  • The sector aims to reach $15 billion in exports by 2030.
  • Pakistan's corporate income tax rate is 29% compared to 9% in the UAE and 25% in Vietnam.
  • Local employees earning above Rs2.5 million can face taxes up to 30%.
  • Remote workers often pay little to none, giving international firms an unfair hiring advantage over local employers.
  • The IT sector has received over $700 million in recent investment commitments.

Sources:

  • "Pakistan's IT sector warns of exodus to tax-friendly countries" - [1]
  • "P@SHA warns government of losing top companies without reforms" - [2]

Read more