Federal Board of Revenue (FBR) announced on Wednesday a proposal to expand the range of tax concessions for income derived from the export of software, IT services, and IT-enabled services.
The proposed shift from an exemption scheme to a tax credit regime could greatly benefit the industry by allowing a 100 percent income tax credit against tax liabilities, including the minimum tax on turnover.
This announcement comes as part of FBR efforts to clarify misunderstandings circulated on social media, which suggested a potential withdrawal of existing tax exemptions for the sector. The FBR confirmed that there is no proposal to eliminate the current exemptions available to income from exports in these categories.
Under the prevailing tax framework, as outlined in clause (133) of Part-I of the Second Schedule to the Income Tax Ordinance, 2001, exports of computer software, IT services, and IT-enabled services are exempt from tax, contingent on the condition that 80 percent of export earnings are remitted back to Pakistan through normal banking channels. Despite the exemption, entities claiming this benefit are still subject to a minimum tax based on their turnover.
The proposed change to a tax credit system aims to not only maintain but enhance the existing support for the IT sector. “This move is designed to provide substantial relief to IT businesses by effectively reducing their tax liability to zero, given they meet the necessary conditions. It is an initiative to encourage more earnings through exports while ensuring a fair contribution to the national economy,” the FBR statement explained.
The IT sector in Pakistan has shown robust growth and is considered a vital component of the national economy, contributing significantly to Pakistan’s exports and generating substantial employment opportunities. The government has repeatedly emphasized its commitment to supporting this sector through various incentives and reforms aimed at fostering innovation and competitiveness on a global scale.
Industry experts view the proposed changes positively, anticipating that such financial incentives would not only solidify the foundation for existing IT businesses but also attract foreign investment and encourage new startups in the sector.
As the proposal awaits further legislative approval, stakeholders from the IT community and related business sectors are keenly observing the developments, hopeful that these enhanced tax measures will lead to greater economic activity and technological advancement in the country.
