Pakistan Faces Major IT Setback if Budget Fails to Address Sector Needs

Islamabad, June 7, 2025: The Pakistan Software Houses Association (P@SHA) has called on the federal government to provide long-term policy consistency and clear tax guidelines for the country’s expanding IT and IT-enabled Services (ITeS) industry in the upcoming 2025–26 federal budget. The body cautioned that erratic policies and random taxation practices are shaking investor trust and could slow future progress.

In a comprehensive statement, P@SHA praised the resilience and potential of Pakistan’s IT industry, pointing out that exports from the sector touched $3.2 billion in the 2023–24 fiscal year and are projected to reach nearly $4 billion by year-end. With the right kind of support, the industry could cross $15 billion in exports by 2030, the association added.

Despite this upward trend, the industry continues to face instability in terms of regulations and operations, which is troubling for investors. “We’re not asking for exemptions that could violate Pakistan’s commitments under the IMF program,” said the group. “But if our fair and practical recommendations are implemented in both letter and spirit, the IT sector can deliver significantly more to national economic growth.”

Fair Taxation for Remote Workers

A major proposal by P@SHA is the inclusion of remote workers in the Income Tax Ordinance, 2001. The organization suggests that individuals earning more than PKR 2.5 million annually through foreign income or with fewer than three international clients should be taxed under the same framework as salaried individuals.

This adjustment, they argue, would help remove the disparity between registered IT firms and freelancers, and would help broaden the national tax base. “The current gap makes it cheaper for foreign firms to bypass local companies and hire talent directly, undermining local competitiveness and export revenue.”

Need for Stability in Tax Policy

Describing the IT sector as still in its early growth phase, P@SHA emphasized the importance of reliable policies to continue its expansion. As evidence, the group mentioned the recent DFDI event, where over $700 million in investment pledges were secured, with $600 million directly facilitated by P@SHA, proving that a stable policy environment attracts investment.

Sudden and frequent changes to taxation laws have harmed investor morale and threaten to undo joint efforts by the Ministry of IT, PSEB, SIFC, and TDAP to boost the sector’s global reach.

Harassment and Operational Pressures Pushing Firms Abroad

P@SHA also drew attention to the hardships faced by IT companies, especially due to pressure from federal and provincial authorities such as EOBI and tax departments. Unjustified notices and threats of forced office closures are pushing many businesses to shift their operations overseas.

Call centers and BPO service providers, which run on narrow profit margins and strict service-level obligations, are especially at risk. The association has asked for temporary relief from old labor rules until more relevant legislation is introduced.

Time-Sensitive Reforms Needed

Pakistan’s tech industry employs over 600,000 professionals and faces some of the highest operational expenses in the region. Despite steady growth, P@SHA warns that the sector’s endurance isn’t infinite. Without urgent tax reforms and stable long-term policies, the country may lose its technological momentum to more flexible economies.

“The choice is clear: either become a digital powerhouse or lose the industry’s momentum entirely,” the statement concluded. “This is not a request for special treatment—it’s a strategic investment in Pakistan’s digital future.”