Dr Bilawal Kamran
Pakistan’s IT sector is not just another branch of the economy—it is one of its few high-growth industries with genuine potential to redefine the country’s developmental trajectory. Amid widespread economic stagnation and policy inconsistency, the technology sector has shown rare resilience. With projected exports nearing USD 4 billion by the end of the fiscal year, and an ambitious yet achievable target of USD 15 billion by 2030, the sector stands as a beacon of hope for inclusive economic revival. But instead of nurturing this lifeline, the state’s approach—particularly its erratic tax policies—is steadily choking its potential.
Despite its performance, Pakistan’s digital economy continues to face severe headwinds due to the lack of a consistent, supportive regulatory and fiscal framework. The Pakistan Software Houses Association (P@SHA), a representative body of the IT industry, has repeatedly raised red flags over persistent policy unpredictability, arbitrary taxation, and operational hurdles. These structural bottlenecks not only stifle innovation and growth but also erode investor confidence—both local and foreign.
At the heart of the issue is the uncompetitive and unstable tax regime governing the sector. Frequent, unannounced changes to tax incentives and withholding tax mechanisms have made long-term planning a gamble for IT companies. Export incentives are introduced with much fanfare, only to be rolled back within months. Fiscal policies oscillate with political moods, rendering them unreliable and untrustworthy in the eyes of investors.
Pakistan currently levies one of the region’s highest corporate tax rates at 29%, with added layers of withholding taxes, minimum turnover taxes, and surcharges. This is compounded by high input costs and limited access to venture capital. Meanwhile, countries like the UAE have a corporate tax rate as low as 9%, and Vietnam, a direct competitor in IT exports, offers a relatively moderate 25%. More importantly, these countries offer predictability—an element sorely missing from Pakistan’s tax landscape.
The contrast is stark. Vietnam’s consistent policy and investment in digital infrastructure have allowed it to scale annual IT exports to a staggering USD 141 billion. While Pakistan’s talent and entrepreneurial potential are comparable, our inability to offer a predictable, investment-friendly ecosystem is holding us back. Instead of enabling growth, our tax structure incentivizes capital flight, foreign incorporation, and informal economic activity.
Adding to this imbalance is a glaring policy blind spot regarding remote workers. As the global trend of freelancing and remote employment has accelerated, Pakistani professionals increasingly work for foreign companies from within the country. Yet, the Income Tax Ordinance of 2001 fails to account for them as a distinct category.
This oversight has led to a damaging asymmetry: IT companies operating locally are required to withhold up to 30% in income taxes for employees earning above Rs 2.5 million annually. In contrast, remote workers earning similar or even higher wages through foreign contracts escape this burden entirely.
The implications are grave. Local IT companies struggle to match the net salaries offered by international firms. This not only triggers a brain drain but also disincentivizes multinational tech firms from establishing physical offices in Pakistan. Why invest in infrastructure or pay local taxes when you can tap the same talent remotely, tax-free?
The failure to rectify this policy gap is more than administrative inertia; it reflects a deeper lack of strategic foresight. In a country desperate to attract FDI, build employment avenues for its youth, and increase its global economic footprint, treating the IT sector with this level of negligence is baffling.
The technology sector does not ask for lavish subsidies or bailout packages. It demands clarity, predictability, and fairness. These are foundational elements of any successful economic policy—yet they remain elusive.
Pakistan’s chronic revenue shortfall is well known, and policymakers are under pressure to widen the tax base. But punishing one of the few thriving sectors with punitive taxation is shortsighted. A restrictive tax regime will not plug revenue gaps; it will push business activity into grey areas, encourage offshoring, and shrink the formal economy.
What is needed is a smart taxation strategy—one that balances revenue generation with growth facilitation. Introducing a simplified, predictable tax regime for IT companies and harmonizing tax treatment between local and remote workers could be the first steps in this direction. The government must also restore and expand export incentives, streamline tax refunds, and ensure that policy decisions are made in consultation with industry stakeholders.
Beyond taxation, broader reforms are required to unlock the IT sector’s potential. This includes modernizing education to build a future-ready workforce, investing in high-speed internet infrastructure, ensuring cybersecurity, and protecting digital rights. It also involves aligning provincial and federal policies, which are often at odds, thereby creating confusion for businesses.
Pakistan is not short on talent. Our software developers, data scientists, and engineers are winning contracts and accolades worldwide. What we lack is an enabling ecosystem that converts this raw potential into structured economic success.
The sector could contribute not just billions in export earnings but also transform the employment landscape. With a youthful population and rising global demand for digital services, Pakistan is uniquely positioned to become a major player in the global digital economy—if it can get its policies right.
The moment for reform is now. Pakistan’s economy is undergoing structural shifts amid global technological disruptions. Missing this opportunity would be a colossal mistake—economically, socially, and politically. Policymakers must recognize that digital transformation is not a luxury; it is a necessity for survival in the 21st-century economy.
Rather than treating the IT sector as a revenue cow, the state must see it as a strategic growth engine. A coherent, forward-looking policy framework—focusing on tax rationalization, operational efficiency, and policy stability—is imperative. Otherwise, Pakistan risks being left behind in the global digital race, while its talent continues to serve foreign markets—tax-free and out of reach.
The choice is clear: reform now, or regret later.
