The Pakistan Software Houses Association (P@SHA) has released a detailed position paper on the Federal Budget 2026–27, describing several measures for the information technology sector as positive developments while warning that key structural challenges remain unresolved. The association said the budget offers meaningful tax relief but falls short of addressing long-term issues affecting growth and investment.
According to P@SHA, the government has retained the concessional tax rate of 0.25 percent on IT exports until Tax Year 2029, providing the sector with three years of policy stability. It also highlighted the reduction of advance tax on foreign card transactions from 5 percent to 0.5 percent, a move expected to benefit freelancers and IT companies engaged in international business. These steps are expected to improve competitiveness and support export growth.
The association identified several additional measures as key gains for the industry, including withholding tax exemptions for startups, tax relief for salaried IT professionals, and a reduction in the Super Tax burden. It noted that raising the Super Tax exemption threshold from Rs150 million to Rs500 million effectively removes most IT companies from that tax category. The government has also allocated more than Rs10 billion for digital skills development through programs such as the Prime Minister’s Youth Skills Development Program and AI Seekho 2026.
Despite these incentives, P@SHA raised concerns over unresolved structural issues. It said the lack of a separate legal definition for freelancers and remote workers employed by overseas firms is creating challenges in retaining skilled talent. The association also pointed to the absence of a comprehensive legal and financial framework for venture capital and private equity, which it said has contributed to weakening foreign investment in the technology sector. It further flagged the continuation of the Rs100 million turnover threshold under Clause 43F as a concern for industry stakeholders.
The budget also introduces new compliance measures, including a 5 percent withholding tax on social media income, mandatory digital financial statements, stricter penalties for e-invoicing violations, and higher fines for late tax filings.
P@SHA has urged the government to define freelancers and remote workers clearly in law, provide permanent legal protection for the 0.25 percent IT export tax rate, and establish a robust framework for venture capital investment. The association estimates that Pakistan’s IT exports could rise from $3.2 billion in FY2024 to $4.5 billion by FY2026, but warned that achieving the $15 billion target by 2030 will depend on resolving key structural bottlenecks.
