ISLAMABAD: Pakistan Software Houses Association (P@SHA) has sought a rational taxation regime to facilitate the growth of the information technology industry.

In its budget proposals for 2025-26 on Thursday, the association demanded an end to the disparities in taxation between local salaried employees and the remote employees of the companies.

The income tax for local employees ranges up to 35 per cent, whereas for remote workers, just 1pc.

“This has led to talent migration and challenges for local companies in retaining skilled professionals,” the association maintained.

The proposals forwarded by P@SHA Chairman Sajjad Mustafa Syed also asked the government to streamline the Federal Board of Revenue (FBR).

It added that FBR should appoint commissioners to resolve the issues of the IT industry as it will prevent unnecessary tax notices and ensure that tax officers develop a better understanding of IT-specific tax matters, leading to more informed decision-making and a streamlined tax administration for the industry.

The P@SHA chief elaborated that the Final Tax Regime (FTR) for IT and ITeS exports should be restored for the next 10 years to ensure predictability, continuity and investor confidence.

The current policy imposes a 5pc tax on corporate debit cards linked to Exporters’ Special Foreign Currency Accounts (ESFCA) on each transaction at the time of payment. At the same time, the IT companies already pay 0.25pc in the FTR on their export proceeds.

P@SHA demanded an exemption on corporate debit card transactions from the additional 5pc tax to avoid double taxation and promote the use of ESFCAs.

The association asked the government to remove withholding tax and other excessive charges for foreign currency retention accounts to incentivise legitimate use of foreign currency earnings.

However, retention on account holders incurs WHT and other charges for using foreign currency debit cards, discouraging legitimate usage, as the foreign income is already exempted and falls under the FTR, imposing additional taxes which lack a justifiable basis.

It recommended the introduction of a tax deduction scheme specifically designed to incentivise R&D activities within IT companies. This scheme could offer deductions for a specific percentage, such as 30pc of qualifying R&D expenses incurred by these firms.

The association has added that the IT sector relies heavily on adapting existing technologies, limiting its long-term, sustainable growth potential. Therefore, a robust domestic innovation ecosystem is crucial for developing indigenous solutions and competing effectively in the global market.

The association highlighted that the taxpayers were facing issues of double taxation by treatment of software as goods by Federal and services by Provincial tax authorities, as Laptops, computers, and other IT equipment were currently taxable.

Published in Dawn, March 14th, 2025