Pakistan IT & Software Sector: Tax Troubles in a High-Potential Industry
The IT and software sector in Pakistan has been a bright spot, generating employment, increasing exports, and establishing our software companies, independent contractors, and start-ups on the international tech scene. From web development to mobile app development to cloud computing, cybersecurity, and artificial intelligence, the industry has demonstrated incredible promise.
However, even with the talent, energy, and demand, the IT industry is now in the midst of a tax problem unrelated to code or innovation.
A Brand-New Sector with Great Potential
Great tech skills exist in Pakistan. Freelancers in Pakistan have the best ratings available on platforms like Upwork and Fiverr.
Our software houses host customers from the US, UK, UAE, and other countries. IT export remittances alone in FY2023 were over $2.5 billion, and unofficial estimates put the figure even higher.
The Tax Scenario as of Present (Updated to 2025)
The IT industry at present is grappling with the below issues:
- Export Income Exemption (Still Applicable): Up to June 2026, IT and ITeS firms registering with PSEB and filing their returns are eligible for a 100% export income exemption.
- Minimum Turnover Tax: If certain documentation requirements are not met, even exempt businesses are required to pay 1% minimum tax on gross receipts.
- Sales Tax Confusion: Sales tax is levied on domestic IT services in provinces like Sindh (13%) and Punjab (5%), frequently without efficient systems or clear communication with the FBR.
- Though their income is “technically” exempt from tax, freelancers are nevertheless obligated to deduct tax on platform or bank payments such as Payoneer.
- Refund Delay: Obtaining an input tax credit or refund would take a very long time for small businesses or sole traders who lack tax consultants.
Impact on the Real World:
There are serious issues with the quantity of taxes that are becoming more than a “business formality.”
New Companies Are Anticipating
Young business persons shy away from PSEB and FBR because of strict compliances, anxiety about audit and delayed refunding. They would prefer to remain unofficial, which prevents them from obtaining government support, loans, and clients.
Service Charge Increase
Because of lower costs and tax stability, enterprises in Bangladesh, Vietnam, or India can become more popular with foreign clients compared to software organizations that impose 13–15% sales tax on local services. That’s a loss of direct income.
Refunds & Withholding Headaches
Even exempt freelancers are subject to upfront taxes on payments, and most can’t get refunds. That lost revenue stream can sink or swim small operators.
The Bigger Problem: Policy Instability
The greatest frustration? Uncertainty.
Every year, the budget brings new rules, new conditions, or fresh documentation requirements. There’s no long-term policy roadmap — which scares off foreign investors and makes it nearly impossible for local firms to plan ahead.
What Needs to Change?
There is no talent shortage in Pakistan. It has issues with trust and taxes.
To fully realize the potential of the IT industry, we require:
- A stable tax policy for IT/ITeS that lasts for five to ten years
- FBR and provincial tax authorities working together seamlessly
- Fast-track exemptions and automatic refunds for startups and independent contractors
- Streamlined procedures for PSEB and SECP registration
- Explicit rules and safeguards for independent contractors’ earnings via remittance platforms
What Businesses and Freelancers Can Do Right Now
Until broader reforms happen, here’s how you can stay compliant and protect your business:
- Register with PSEB to claim export exemptions
- File regular income and sales tax returns
- Keep records of all export remittances and IT invoices
- Use remittance channels like Payoneer, bank inward remittance, or Roshan Digital
- Consult a tax expert or firm like best tax consultancy firm Corptax Solutions to avoid legal pitfalls
Final Thoughts
Pakistan’s IT industry has the potential to become a global tech hub — but without tax clarity and support, we’re throttling our own growth.
This isn’t just about policy — it’s about trust, opportunity, and building a future where our developers, designers, and tech entrepreneurs can thrive.
Let’s fix the system — not the sector.