IT Ministry Proposes Tax Exemption on Importing Hardware and Software for Exports With “Made in Pakistan” Policy

The Ministry of Information Technology and Telecom has proposed a series of measures aimed at enhancing Pakistan’s IT export potential and fostering a more favorable business environment for startups, SMEs, and freelancers. In a written submission to the National Assembly, the ministry emphasized the need for ICT sector categorization as SMEs and advocated for streamlined tax benefits, facilitation desks across financial institutions, and simplified processes for business registration and tax filing. This approach, the ministry notes, could significantly improve operational efficiencies and promote rapid growth in Pakistan’s technology landscape. Proposals included the exemption of tax on imports of IT hardware and software critical for IT exports, and the creation of a “Made in Pakistan” policy to promote locally manufactured technology products. Among the key recommendations, the Ministry of IT suggested that the State Bank of Pakistan (SBP) enhance support for ICT startups and SMEs by establishing facilitation desks with trained staff across all branches managing Export Special Foreign Currency Accounts (ESFCA). The ministry also recommended that the SBP expedite the issuance of corporate ESFCA debit cards, permit 100% retention in ESFCA accounts, and develop a foreign exchange portal to streamline the inflow and outflow of remittances. These changes, according to the ministry, would better support Pakistan’s tech companies in managing international transactions smoothly. Tax reforms were another focus, with the Ministry proposing that the Federal Board of Revenue (FBR) eliminate the 5% advance tax on debit cards linked to ESFCA accounts, as well as harmonize the definition of IT and IT-enabled services (ITeS) across federal and provincial levels. The ministry recommended that the existing 100% tax credit for startups registered with the Pakistan Software Export Board (PSEB) be extended to 2030. It also advised granting exemptions on dividends and capital gains from IT startups, exempting IT services from sales tax, and clarifying the final tax regime (FTR) for individuals using remittance services such as Payoneer and Wise. The ministry also called for targeted tax relief for freelancers, who currently benefit from a 1% final tax on income that can be reduced to 0.25% if they are PSEB-registered. Recognizing the significant role of freelancers in reducing unemployment and boosting foreign remittances, the ministry recommended exempting them from monthly sales tax returns and registration. These measures would, the ministry argued, make Pakistan’s business environment more conducive to freelance work, which has grown in popularity as more professionals opt for flexible, high-paying international opportunities. To encourage venture capital investment, the ministry recommended establishing a government-backed venture capital fund to provide financial support for SMEs, startups, and freelancers. It also proposed incentivizing banks and venture capital firms through tax breaks to encourage lending within the IT sector, ensuring robust financial support for early-stage companies. Finally, the Ministry of IT and Telecom emphasized the importance of a balanced approach to taxation and support structures for IT companies and freelancers to prevent talent drain from domestic companies to freelance roles. By simplifying tax processes and establishing user-friendly digital platforms for tax filing and compliance, the ministry aims to create an equitable landscape that supports freelancers, startups, and established IT firms alike, bolstering Pakistan’s IT exports and technological progress on the global stage.