As the government prepares the Federal Budget 2025–26, the Pakistan Software Houses Association (P@SHA) is calling for immediate and strategic reforms to ensure the long-term sustainability of the IT and IT-enabled Services (ITeS) sector. With a record of resilience and growing export performance, the IT industry is seen as a critical pillar of Pakistan’s digital economy—but that growth is now at risk due to inconsistent tax policies and operational roadblocks.
In its detailed budget recommendations for FY26, P@SHA emphasized the importance of policy continuity and clear taxation structures to encourage further expansion of the industry. The sector has already delivered $3.2 billion in IT exports in FY24 and is on track to reach nearly $4 billion by the end of the fiscal year. With proper policy support, the association believes that the industry could unlock a $15 billion export potential by 2030.
Policy Instability Undermining Confidence
Despite the promising growth trajectory, P@SHA warned that ad hoc policymaking, inconsistent tax treatment, and bureaucratic challenges are undermining investor confidence. This unpredictability is making long-term planning and investment increasingly difficult for local IT firms and international partners alike.
The association acknowledged the fiscal constraints placed on the government due to commitments made under the IMF program, yet stressed that its recommendations are both practical and aligned with responsible economic planning. P@SHA made it clear: the industry is not seeking blanket exemptions but rather structured reforms that encourage compliance and foster a competitive business environment.
Addressing Remote Work Taxation
A major point raised in the proposal is the need to address inconsistencies in tax treatment between remote workers and full-time employees of IT firms. P@SHA urged the government to formally define “remote workers” in the Income Tax Ordinance (2001), proposing that individuals earning over Rs. 2.5 million annually through foreign remittances—or working with fewer than three clients—be taxed similarly to salaried professionals.
This reform, P@SHA argues, would help expand the tax base and eliminate the current incentive for global companies to bypass local firms by hiring Pakistani freelancers directly. Leveling the playing field is essential for maintaining a stable employment ecosystem in the IT sector.
The Case for Policy Continuity
According to P@SHA, the recent surge in foreign investor interest—highlighted by over $700 million in commitments at the recent Digital Foreign Direct Investment (DFDI) event, $600 million of which were directly facilitated by the association—underscores the need for sustained momentum. Any disruption in tax incentives or policy direction could jeopardize this progress.
Frequent revisions in fiscal policies, including changes to export incentives and withholding taxes, have eroded trust and made Pakistan a less predictable environment for digital investors. Stability is key to nurturing startups, developing digital infrastructure, and attracting high-value investments in the tech space.
P@SHA urged the government to implement a long-term tax policy framework for the IT sector, committing to no changes in the country’s tax structure that could deter growth. Countries that have successfully developed their digital economies provided similar long-term consistency during their formative stages—Pakistan must do the same to stay globally competitive.
Removing Operational Bottlenecks
Operational inefficiencies also threaten to derail the sector’s progress. P@SHA called for urgent digitization of processes related to international capital repatriation to improve investor experience. Additionally, the association strongly condemned the harassment of IT firms by provincial and federal bodies such as EOBI and various tax departments.
These outdated enforcement practices—such as arbitrary notices and threats of office closure—create a hostile climate that is pushing businesses to relocate offshore. This is particularly harmful for service-based operations like BPOs and call centers, which operate on tight margins and rely on uninterrupted operations to meet service-level agreements.
P@SHA called for immediate relief from misaligned labor regulations and recommended temporary exemptions for IT companies until labor laws are reformed. Protecting these companies from outdated rules is vital for maintaining their viability in the global outsourcing market.
A Workforce That Deserves Support
Despite operating in one of the lowest revenue-per-employee environments in the region, Pakistan’s IT sector has built a robust and formal workforce of over 600,000 individuals. These professionals continue to drive growth even while facing some of the highest input costs in the region.
However, P@SHA warned that even the sector’s impressive resilience has its limits. Without urgent reforms and a consistent, supportive policy environment, Pakistan’s digital economy may fall behind more agile and investment-friendly markets.
The message from P@SHA is clear: Pakistan’s IT sector has the talent, potential, and global interest to thrive. What it needs now is a stable policy framework and an enabling environment. With the right moves in the 2025–26 federal budget, the government has the opportunity to transform Pakistan into a $15 billion IT export powerhouse by the end of the decade. The question is: will it seize the moment?
