P@SHA terms budget FY26 a threat to IT industry

June 13, 2025 (MLN): The Pakistan Software Houses Association (P@SHA) has strongly criticised the federal Budget 2025–26, calling it a “disappointment” and a direct threat to the future of Pakistan’s Information Technology (IT) and IT-enabled Services (ITeS) sector.

The association said that the government had dealt a severe blow to an industry that has long been seen as a pillar of export-led recovery, youth employment, and digital transformation.

The sector currently employs over 600,000 young professionals, forming one of the largest skilled talent pools in the country, as per the press release issued.

P@SHA expressed deep concern over the budget’s failure to address two long-standing industry demands that the establishment of a clear and equitable taxation framework for remote workers and the continuation and expansion of the existing tax regime for formal IT exporters.

“The industry has consistently demanded not a temporary concession or patchwork relief, but a stable, 10-year tax policy framework that would enable companies to invest, grow, and compete globally,” the association stated.

P@SHA Chairman Sajjad Syed said the imbalance in taxation had been flagged by the association for over a year.

He pointed out that high-earning remote workers employed by foreign firms remain untaxed, while full-time employees of local IT companies are taxed, creating an uneven playing field.

“This makes local hiring more expensive, incentivises capital flight, and encourages informal arrangements,” said Syed. “Talent retention is collapsing, export dollars are being parked abroad, and formal firms are bleeding value.”

He added that the association had proposed a straightforward solution: to classify any individual earning over Rs2.5 million annually from fewer than three foreign sources as a remote worker.

According to him, this measure would impact only the top 5% of earners, leaving freelancers and small remitters unaffected.

P@SHA said that the State Bank already possesses the mechanisms to track such data, enabling immediate implementation. However, the proposal has repeatedly been ignored.

The association also criticised the government’s failure to extend the existing tax regime for IT exporters, a framework which P@SHA said underpinned more than $700m in investment commitments made through the Digital Foreign Direct Investment (DFDI) initiative.

“A significant amount of taxpayer money was spent to secure those investments during a recent forum in Islamabad,” the statement read.

“There is no continuity in tax policy, and these investments are now at risk. Foreign investors will not engage with a country where rules change every year.”

According to P@SHA, the federal budget sends a damaging message to the international community about the instability of Pakistan’s digital economy.

“The consequences will be devastating,” said Syed. “Pakistan’s IT sector, once considered among the country’s most globally competitive industries, may lose its momentum entirely.”

He warned that without corrective action, export growth would stall, job opportunities would shrink, and the government’s target of $25 billion in IT exports would become unattainable.

P@SHA concluded that Budget 2025, in its present form, poses an existential threat to the formal tech ecosystem and urged the government to act quickly and decisively to avoid irreversible damage.