ISLAMABAD: The government has dismissed an IT industry’s demand for waiving a ‘negligible’ tax on its services to support the sector’s faltering exports but agreed to provide maximum facilitation, including exemption from audit by the tax authorities.

Presiding over a meeting of the IT sector on Sunday, Finance Minister Ishaq Dar observed that the effective tax rate on the sector was about 0.25 per cent, which was “peanuts”. He said people should develop the habit of paying taxes on their incomes instead of seeking exemptions. A tax of Rs2.5 on exports of Rs1,000 is “nothing”, Mr Dar said.

He, however, promised that IT professionals exporting their services would not be sent tax notices by the Federal Board of Revenue (FBR) and their tax returns would not be subjected to audit to minimise their revenue cost.

Moreover, he also directed the FBR to set up a unit where dedicated officers act as a one-window facility and handle refund and tax credit cases of the IT sector to reduce hassle.

Calls 0.25pc levy ‘peanuts’; asks people to develop habit of paying taxes

Finance Minister Dar is the chairman of the Prime Minister’s Task Force on Informa­tion Technology and Telecom. The meeting of the task force was also attended by IT Min­i­ster Syed Aminul Haque, Special Assistant to Prime Minister (SAPM) on Youth Affairs Shaza Fatima Khawaja, SAPM on Finance Tariq Bajwa, State Bank Governor Jameel Ahmed, Finance Secretary Hamid Yaqoob Shaikh, IT Secretary Mohsin Mushtaq, and chairpersons of the FBR and the Pakistan Telecommunication Authority.

Informed sources said the IT ministry had taken up with the task force a host of challenges crippling the software export sector.

It was explained that on the expiry of the tax holiday to the IT sector, the PML-N government under former prime minister Shahid Khaqan Abbasi had replaced the tax holiday with 0.25pc of full and final tax. This could not be implemented owing to traditional challenges with the tax authorities and tax notices started to flow out to top-ranking companies like S&P Global.

On top of that, the government in the 2021-22 budget reduced the advance income tax for the sector from 12pc to 10pc with a promise that it would be reduced to 8pc in the next fiscal year. As additional spectrum sales and other expansion, the FBR was able, through the December 2021 mini-budget, to instead increase the advance income tax to 15pc on the premise that the International Monetary Fund wanted this tax to go up instead of a promised sliding scale.

The IT sector and the ministry had been agitating that this had paralysed the sector, leading to a fall in exports by a few million dollars in the first few months of this fiscal year compared to the year-ago period.

Conversely, the IT ministry advocated that an export reward scheme should be offered to software and IT services exports at the rate of at least 5pc because they were professionals of nominal worth but would be encouraged to declare their income proceeds for reward.

The ministry told the task force that not only the IT professionals were unhappy with FBR’s tactics, the implementation of a policy that envisaged permission to utilise 35pc of export proceeds for marketing purposes had not come into force.

It explained that, unlike manufacturing goods that can be tracked because of their physical exports, IT exports proceeds could be easily parked abroad through outlets established in Singapore, Dubai and other Middle Eastern destinations. In such a situation, the government may also face challenges in rolling out 5G telecom spectrum licences.

Published in Dawn, October 24th, 2022