Amir Saeed

Tax burden on Pakistan’s IT sector poses significant challenges to its growth, necessitating urgent government reforms and incentives to attract investment and foster innovation.

Talking to WealthPK, Maher Nafees, a senior software engineer at Rin Technologies Ltd, a tech company, highlighted that the tax burden on Pakistan’s IT sector was a critical issue that needed immediate attention. He argued that the current taxation policies, which impose taxes on revenue, hindered the sector’s growth and discouraged foreign investment. He emphasised that companies could easily leave Pakistan if they found the operating environment unfavourable due to high taxes.

Nafees advocated for tax incentives to allow companies to thrive and encourage remittances and foreign investment. To address these challenges, he suggested implementing a uniform 5% GST for all digital transactions, along with an input tax credit for five years. “This would promote digital payments and e-commerce, reducing cash-related inefficiencies.” Furthermore, he demanded a 10% reduction in corporate income tax rates for small and medium-sized enterprises over the next decade, contingent upon their registration and use of digital platforms.

He also highlighted the importance of simplifying taxation and foreign exchange regimes for IT export companies to attract global businesses. Finally, he proposed a 20-year capital gains tax exemption for investments in tech startups to stimulate growth in this burgeoning sector. Talking to WealthPK, Awais Ahmad, director at Tech Solutions Pro, a provider of modern graphic design services, advocated for a reduction in the tax burden on the IT sector, emphasising that alleviating taxation would significantly enhance the industry’s growth potential.

He argued that while tax incentives existed, further reductions were necessary to fully unlock the sector’s capabilities. He pointed out that a lower tax burden would make the country more competitive as an outsourcing destination, attracting more foreign investment and partnerships. “By reducing taxes on IT services, the government can create a more favourable environment for startups and established companies alike.”With around 20,000 to 25,000 IT graduates entering the workforce annually, Ahmad asserted that reducing taxes would allow companies to invest more in talent development and innovation.

“This investment is crucial for fostering a robust ecosystem where skilled professionals can thrive and contribute to technological advancements.” He also highlighted that a reduced tax burden could enable companies to allocate more resources toward improving essential infrastructure such as electricity and internet services. “This improvement is vital for enhancing operational efficiency and reliability, further solidifying the country’s position as a viable outsourcing hub.”

While acknowledging the government’s efforts through initiatives like the Digital Pakistan Initiative, Ahmad stressed that these efforts must be complemented by significant tax reductions. He said that strategic partnerships between the government and private sector could lead to innovative solutions that address both infrastructure challenges and taxation issues.

Credit: INP-WealthPk