Budget 2024-25 to Derail Pakistan IT Industry: FPCCI

Budget 2024-25 to Derail Pakistan IT Industry: FPCCI

Karachi, June 27, 2024 – The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) expressed strong concerns on Thursday regarding the measures introduced in the Federal Budget 2024-25, warning that these could derail the country’s information technology (IT) industry.

Atif Iqbal Sheikh, President of FPCCI, criticized the budget for its high taxation policies, which he believes will exacerbate brain drain within the IT sector by stifling growth and innovation. Sheikh emphasized that despite repeated assurances from the government, the budgetary proposals from the IT industry have been ignored.

FPCCI Chief stated, “The new finance bill reveals the finance division’s short-sightedness towards the IT industry, which will ultimately derail it. Over the past 10 days, the Pakistan Software Houses Association (P@SHA) has expressed its concerns on various platforms, including national and international media, and decision-making forums.”

Saquib Fayyaz Magoon, Senior Vice President of FPCCI, highlighted that P@SHA was invited to present its position during a crucial meeting of the Standing Committee on Finance and Revenue. The association pointed out that the higher income tax burden on the salaried class could lead to an increased brain drain. This issue is further compounded by the remote worker tax regime, which undermines the government’s goals of increasing revenue and expanding the tax net.

FPCCI VP also noted that the PKR 79 billion allocated in the budget is primarily for government projects and IT parks, neglecting the broader IT industry. The current situation regarding taxes and human resource availability is alarming, and P@SHA has consistently presented relevant proposals to the government.

Muhammad Zohaib Khan, Chairman of P@SHA, emphasized that the remote worker tax regime undermines the government’s revenue goals. Remote workers, often paid in foreign currencies, face lower tax burdens compared to domestic employees, incentivizing companies to reclassify senior staff as remote workers, leading to inefficiencies and tax revenue loss.

Khan proposed a competitive tax rate for payroll, such as a flat 5%, for P@SHA and Pakistan Software Export Board (PSEB)-registered IT companies to encourage formal employment and prevent talent drain. Additionally, implementing clear policies to ensure remote workers pay their fair share would create a level-playing field for local businesses.

Khan also stressed the need for reforms to facilitate smoother foreign remittances for the IT industry and broader economy. He pointed out anomalies in current tax laws, such as increased GST on laptop and desktop imports, which depict a bleak future for Pakistan’s IT industry.

Furthermore, P@SHA highlighted tax anomalies faced by IT exporters under the Final Tax Regime (FTR), which impose additional tax rates on payments abroad, hampering efficiency and competitiveness. The association proposed avoiding double taxation, promoting the use of Exporters Special Foreign Currency Accounts (ESFCAs), and making ESFCAs more attractive for IT companies.

The FPCCI’s statements reflect the broader industry’s concerns that the budgetary measures could significantly hinder the growth and sustainability of Pakistan’s IT sector.