ISLAMABAD

Pakistan’s software industry has welcomed several incentives announced in the federal budget for FY2026-27 but cautioned that critical structural reforms required to unlock the sector’s full potential remain unaddressed.

In a detailed position paper, the Pakistan Software Houses Association (P@SHA) praised the government’s decision to extend the 0.25 percent tax rate on IT exports until tax year 2029, describing it as a major step toward ensuring policy stability and supporting export growth in one of Pakistan’s fastest-growing industries.

The association also welcomed the reduction in advance tax on international card transactions from 5 percent to 0.5 percent, a measure expected to benefit freelancers, remote workers, and technology companies engaged in global business.

P@SHA further highlighted tax relief for salaried IT professionals, withholding tax exemptions for startups, and changes to the super tax regime as positive developments. The increase in the super tax exemption threshold from Rs150 million to Rs500 million is expected to bring a large number of IT companies outside its scope.

The industry body also praised the government’s continued investment in digital skills development, noting that initiatives such as the Prime Minister’s Youth Skills Development Programme, AI Seekho 2026, and related projects could collectively attract investments exceeding Rs10 billion to strengthen Pakistan’s digital workforce.

Despite these gains, P@SHA expressed concern over unresolved issues affecting the sector’s long-term competitiveness. The association said the absence of a clear legal distinction between freelancers, remote workers, and formal IT exporters continues to create challenges for local companies seeking to retain skilled professionals.

The position paper also pointed to the lack of a comprehensive venture capital and private equity framework, warning that regulatory and financial barriers have contributed to a decline in foreign investment in Pakistan’s technology ecosystem.

Additional concerns include the continuation of turnover limits under Clause 43F and new compliance measures introduced in the budget, including a proposed 5 percent withholding tax on social media earnings, mandatory digital financial statements, stricter e-invoicing requirements, and higher penalties for late tax filings.

P@SHA urged the government to provide permanent legal protection to the 0.25 percent export tax regime, establish a dedicated framework for venture capital investment, and formally define freelancers and remote workers to ensure sustainable growth.

According to the association, Pakistan’s IT exports are projected to increase from $3.2 billion in FY2024 to $4.5 billion in FY2026. However, it warned that achieving the country’s ambitious $15 billion export target by 2030 will require deeper reforms and the removal of long-standing structural bottlenecks