Muneeb ur Rehman

The newly agreed program with the International Monetary Fund (IMF) can be a short-term relief for the economy of Pakistan, but the significant opportunity cost of the package lies in the non-implementation of domestic policies across various sectors, particularly the IT industry. Asim Ahmed, ex-chairman Federal Board of Revenue (FBR), said while talking to WealthPK that the government aims to promote the IT sector through domestic policies facing resistance from the IMF. He said the government, through a finance bill, planned to give 20% concessions on the income of banks from additional advances to IT and IT-enabled services (ITes) for tax years 2024 and 2025. The proposed plan, he said, met the IMF rejection on the premise that the revenue position of the country did not justify any concessions.

The IT sector has rapidly grown in Pakistan for the last few years. According to the Pakistan Bureau of Statistics (PBS), during the first seven months of the fiscal year 2022-23, Pakistan achieved a revenue of $1.523 billion by providing a variety of IT services to different countries. This reflects a growth rate of 2.38% compared to the corresponding period of fiscal year 2021-22. Asim said the bill also proposed to exempt IT SMEs (small and medium-sized enterprises) from withholding tax and a rate of 0.125% of export revenue was to be fixed for at least seven years. He said the plan was beneficial for Pakistan's promotion of small businesses and startups in the IT sector. However, he said, the IMF disagreed with its implementation.

Mentioning the importance of tax breaks on capital gains for the IT sector, he said, “Tax breaks have proved to be instrumental across the world for infant industries or sectors.” “The government's inability to adopt the plan of granting a seven-year exemption on income from venture capital fundings and foreign private investments into startups registered in Pakistan is a result of the IMF's dominant influence on domestic policies,” said the former FBR chairman. Asim asserted that a $3 billion loan can only give breathing space for the economy. He said the extensive implicit cost of the bailout package arises from the neglect of domestic policies in diverse sectors, notably the IT industry.

Credit: INP-WealthPk