ISLAMABAD, April 15: The Pakistan Software Houses Association (P@SHA) has formally urged the government to extend the Final Tax Regime (FTR) for IT and ITeS exports until 2035.
It believes that a long-term policy is essential to preserve investor confidence, sustain export momentum, and attract foreign direct investment.
The demand comes as part of P@SHA’s Federal Budget 2025–26 proposals, submitted to relevant ministries.
The association is calling for tax policy consistency, noting that the FTR is currently scheduled to expire on June 30, 2026.
A Call for Continuity: From Brain Drain to Brain Gain
Chairman Sajjad Mustafa Syed emphasised that the IT sector is experiencing rapid growth, regional market expansion, and heightened investor interest.
Extending FTR would support this momentum by allowing firms to retain more revenue, reinvest in technology, and create skilled jobs in Pakistan.
“We need to restore predictability in tax policies. This isn’t just about reduced taxation—it’s about creating an environment where IT companies can confidently invest, innovate, and scale,” said Syed.
He noted that simplifying the tax structure will also reduce administrative burdens, making Pakistan more competitive against regional players offering similar long-term tax benefits.
Read more: How IT and Software Industry Face Tax Discrimination in Pakistan?
Why the FTR Matters for IT and ITeS Firms
The FTR currently allows registered IT exporters under the Pakistan Software Export Board (PSEB) to pay a 0.25% withholding tax on their export proceeds.
This mechanism has helped hundreds of firms streamline compliance and reinvest more in local operations.
P@SHA’s proposal to extend FTR to 2035 is built around three pillars. These are predictability for investors, continued export growth, and encouragement for inward remittance.
Addressing Salary Tax Disparities and Talent Drain
Syed also pointed out that income tax rates on salaried IT professionals (ranging between 5% and 35%) create a disadvantage for local companies. This is especially true when remote freelancers or consultants pay as low as 0.25%.
This gap leads to talent migration and makes it harder for companies to retain skilled workers.
“We must reduce income tax rates on salaried tech workers if we want to keep our top talent from leaving,” he said.
Tackling Withholding Tax on International Payments
Another key proposal from P@SHA involves foreign exchange repatriation.
Under the current Income Tax Ordinance 2001, payments to non-residents for services (such as royalties or technical fees) are subject to up to 15% withholding tax.
This is true unless a Double Taxation Agreement (DTA) applies.
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P@SHA is advocating for exemptions on payments made from Exporters’ Special Foreign Currency Accounts (ESFCA).
The goal is to encourage smoother financial operations and bring more foreign income into Pakistan’s banking system.
What’s at Stake?
With Pakistan eyeing a greater role in the global tech supply chain, Syed said the industry needs policy continuity, low taxation, and an enabling environment to thrive.
A 10-year FTR extension would fuel digital transformation, increase export revenue, and establish Pakistan as a regional leader in software and IT services.
