Budget is ‘death knell' for IT industry: P@SHA

Business Recorder

11-06-2025

The budget has failed to address two urgent standing demands from the IT sector: a defined and fair taxation framework for remote workers, and the continuation and expansion of the current tax regime for formal IT exporters, according to the Pakistan Software Houses Association (P@SHA).
In a statement on Wednesday, the association said the industry's repeated demand for a 10-year tax policy framework—one that allows companies to invest, grow and compete with global peers, has been ignored.
It described this as a 'stunning act of neglect' and a 'quiet but decisive blow to an industry that has carried the hopes of export-led recovery, youth employment and digital transformation.'
It added that for an industry that employs over 600,000 young Pakistanis and is one of the country's largest and most vital pools of skilled talent, 'this budget is not just a disappointment; it is a threat.'
According to the association, high-earning remote workers employed by foreign companies, who are often indistinguishable from full-time employees, remain largely untaxed.
Meanwhile, companies based in Pakistan, employing and training local talent, are taxed, audited and over-regulated.
'This makes local hiring more expensive; while incentivizing capital flight and informal arrangements.'
It added that 'talent retention is collapsing; export dollars are being parked abroad, and formal firms are bleeding value.'
Brain drain: Pakistan lost 727,381 workers to overseas employment in 2024
P@SHA said the government's refusal to act is particularly frustrating given the simplicity of its proposed solution: classifying any individual earning over Rs 2.5 million annually from fewer than three foreign sources as a remote worker.
It believes this will affect only the top 5% of earners and avoids hurting freelancers and small remitters.
It also said the government needs to extend the existing tax regime for exporters.
It added that the $700 million in investment commitments secured through the Digital Foreign Direct Investment (DFDI) initiative is in jeopardy due to a lack of continuity in tax policy as 'foreign investors will not engage with a country where rules shift every year.'
P@SHA said the budget 'is a signal to the world that Pakistan's digital economy is not ready to be taken seriously. The results will be devastating. Pakistan's IT sector—its fastest-growing, most globally competitive industry—may lose its momentum entirely.'
It warned that export growth will stall; jobs will disappear and the government's dream of reaching $25 billion in IT exports will become permanently out of reach.
It said the budget 2025, in its current form, is a direct threat to the survival of the formal tech ecosystem. It penalizes compliance; discourages investment and incentivizes informality.
It warned that 'this is not about incentives anymore. It is about preserving one of Pakistan's only working economic success stories. The stakes could not be higher.'
Pakistan's IT sector a bright spot
The warning comes amid a report from i2i, which notes that Pakistan's IT sector has emerged as a bright spot in the country's otherwise sluggish economy, with exports set to reach around $3.7 billion (FY2025) and a predominantly young, tech-savvy population fueling growth.
It said that in the first ten months of fiscal year 2025, IT exports reached $3.1 billion, marking a robust 21% year-on-year (YoY) increase.
Notably, April 2025 saw monthly IT exports of $317 million, up 2% YoY, though down 7% month-on-month (MoM). This figure remains above the 12-month average of $314 million, reflecting the 19th consecutive month of YoY export growth starting from October 2023.
Looking ahead, experts predict Pakistan's IT sector will continue its upward trajectory, expecting 10-15% growth in FY25, reaching $3.5–3.7 billion in exports. The government's ambitious 'Uraan Pakistan' economic plan targets $10 billion in IT exports by FY29, implying a compound annual growth rate (CAGR) of 28%.
However, it warned that despite this momentum, structural issues remain. Freelancers, who contribute significantly to digital exports (projected to exceed $500 million in FY25), face hurdles such as limited access to international payment gateways like PayPal, unclear taxation, and a lack of tailored banking services. Moreover, the regulatory landscape around emerging fintech, including cryptocurrencies and digital assets, is still evolving.