In a move aimed at bolstering export growth and attracting greater foreign investment, the Pakistan Software Houses Association (P@SHA) has appealed to the government to extend the final tax regime (FTR) for IT and IT-enabled services (ITeS) for a period of 10 years, according to a report in The News on Thursday.
The current FTR is slated to expire on June 30, 2026. Notably, it allows for a reduced withholding tax rate of 0.25% on export earnings for companies registered with the Pakistan Software Export Board (PSEB).
The appeal was made by P@SHA Chairperson Sajjad Mustafa Syed as part of the association’s comprehensive budgetary proposals for the upcoming Federal Budget 2025-26.
These proposals underscore the need for structural reforms focused on attracting foreign direct investment (FDI), enhancing export competitiveness, generating employment opportunities, and fostering the overall development of Pakistan’s IT sector.
Syed emphasized that extending the FTR until 2035 would provide crucial stability, predictability, and bolster investor confidence at a time when the industry is experiencing rapid growth, regional expansion, and increasing global demand for Pakistani tech talent.
“The continuation of FTR will simplify tax compliance for IT firms and empower exporters to reinvest in business growth, innovation, and digital transformation,” he stated. “Policy-level consistency and tax incentives are fundamental to positioning Pakistan as a regional IT powerhouse.”
He also highlighted that regional competitors offer long-term tax incentives to attract IT-related FDI, stressing the necessity for Pakistan to adopt similar measures to maintain its competitive edge.
According to P@SHA, a 10-year tax exemption aligns with the objectives set forth by the Special Investment Facilitation Council (SIFC) and the Prime Minister’s vision for exponential growth in IT exports.
Raising concerns about income tax disparities within the sector, Syed pointed out that salaried employees in IT companies currently face income tax rates ranging from 5% to 35%, in stark contrast to the 0.25% to 1.0% paid by remote workers.
He warned that this imbalance is contributing to brain drain and hindering local firms’ ability to retain skilled professionals. He advocated for significantly lower income tax rates for salaried IT professionals to unlock the sector’s full potential.
Another key proposal from P@SHA involves incentivizing the repatriation of foreign exchange. Syed criticized the existing Income Tax Ordinance, 2001, which imposes a 15% withholding tax on payments made to non-residents for services rendered, particularly in the absence of double taxation agreements.
To address this, P@SHA has proposed an exemption from withholding tax on payments originating from Exporters’ Special Foreign Currency Accounts (ESFCA). Syed clarified that this exemption would apply to all categories of IT services and would facilitate the inward flow of foreign earnings into Pakistan.
P@SHA’s budgetary proposals reflect the association’s broader initiative to cultivate a sustainable and globally competitive digital economy, grounded in policy continuity, tax reforms, and investment-friendly regulations.
