It’s the same story around June every year as the federal budget approaches. First, there’s the hype, with media outlets trying to guess what the grand plan is and inviting experts. True to form, the industry associations double down on their lobbying, repeating their cliched tripes about how the discontinuation of a particular incentive will apparently trigger a bankruptcy domino.

On the other end, traders, real estate and agri lords resist any additional taxation measures, knowing full well that none of it would really impact them practically if not legally. Meanwhile, the finance czars pretend to do the balancing act between the will of the people and the demands of the International Monetary Fund, only to eventually milk the same salaried class again.

Everything is boring and follows the same pattern the way an Ekta Kapoor soap opera does. It doesn’t really matter if the finance minister in question is an economist, a seasoned banker, or a chartered accountant with loving in-laws. At this point, the state machinery has become so creative with bookkeeping to maintain its fiscal indiscipline that any structural changes are beyond imagination.

Case in point: Pakistan’s technology industry. For years, it was by far the biggest growth driver but now the broader information and communication sector has declined for two consecutive years. Funnily, this little tidbit finds no mention in the economic survey, which basically gives you a pretty decent idea about how serious the government is in introspecting where things could be wrong. Instead, their focus was on successes like the 45 e-rozgar centres opened, regardless of their actual contribution.

With a tax hike on hardware and no relief for skilled professionals, the government risks accelerating talent drain

Those misplaced priorities were evident in the budget as well, which was somewhat of a mixed bag depending on how you look at it. For the Ministry of Information Technology & Telecommunications, it was definitely a big win as their outlay was increased to Rs40.1 billion for FY25, more than four times compared to the original budget amount for the previous fiscal year. Now add the development expenditure of Rs28.9bn and it looks quite juicy.

In his speech, the finance minister also mentioned the setting up of a National Digital Commission and an associated Pakistan Digital Authority. The former would be responsible for setting the policy and strategy for the country’s digitalisation, while the latter would be the executing body, essentially enabling the tech transformation of other state organisations.

The ministry has proposed increasing the general sales tax on IT hardware to 10 per cent, from 5pc. This is at a time when Pakistan’s information and communication technology goods are continuously downgrading, which is telling of how grounded the decision makers are. With virtually no domestic production and massive devaluation over the last four years, even somewhat obsolete computing devices cost double of what they used.

According to an analysis by Data Darbar using the Trade Information Portal of Pakistan, average prices of imported laptops (179pc) and personal computers (162pc) increased by almost twice as much as the overall consumer price index (84pc) between FY19 and FY23.

The gap between what the industry needs versus what the government offers is widening by the day. In its recommendations, the Pakistan Software House Association had specifically focused on the contrasting treatment of a corporate employee and a freelancer, where the former is taxed 5-35pc and the latter at just a maximum of 1pc. Their demand was a maximum rate of 5pc income tax for employees of registered companies. Similarly, no attention was paid to their proposal of raising dollar retention for exporters to 100pc.

Unsurprisingly, the chairman of the Pakistan Software House Association, Zohaib Khan, was quite unhappy and claimed to the media that none of their demands have been met. Now obviously, this is not new: post-budget clarity among trade bodies is an age-old phenomenon. But this is not about industry associations. As much as I hate the hyperbole of alarm bells, the situation is getting concerning for the sector.

There’s a very clear, and not so latent, dissatisfaction among skilled professionals, who in the absence of mass public mobilisation have preferred to either quietly go about their way or go away for good. With each passing day, the second option is easily becoming the clear winner.

Unfortunately, instead of correcting course, the government is hell-bent on ensuring that every last of the skilled professionals bids goodbye and moves to countries where their skillset is valued and their income doesn’t devalue every day. Unlike other fields, cross-border movement is far easier in tech with high salaries, remote work and countless digital nomad visas up for grabs.

Even those who choose to stay back won’t be easy to milk. Most sensible export-oriented companies are already parking a growing portion of their revenues abroad, while those historically focused on the local market are aggressively trying to find opportunities abroad. And when they do, the government won’t really be getting much.

In the end, there will be hundreds of ‘back offices’ of Delaware incorporated companies founded by Pakistanis, who will employ thousands of people, each technically categorised as a freelancer so their salary will be remittance and exempted from tax, and none of the profits will ever go near the Federal Board of Revenue. At this rate, there will soon be a huge parallel economy while every economic review will brag about the number of rozgar centers.

The writer is co-founder of Data Darbar

Published in Dawn, The Business and Finance Weekly, June 24th, 2024

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