IT Ministry Shares Detailed Report on Slowed IT Sector Growth, Forgets Internet Disruptions

The Ministry of Information Technology and Telecom has identified critical constraints undermining the growth of Pakistan’s IT and IT-enabled Services (ITeS) sector, outlining these challenges in a report submitted to the federal government. Key among the issues is the inconsistency in government policies, particularly regarding taxation. The report notes that frequent shifts in tax policies, including fluctuating tax exemptions, credits, and final tax regimes, have created substantial obstacles for IT businesses and freelancers. Such policy inconsistencies have eroded business confidence and contributed to hurdles in attracting IT export revenues through official channels. The report also flags significant issues within Pakistan’s banking system, which has made it difficult for IT exporters to utilize formal banking avenues. Due to restrictive banking policies, many exporters opt to retain their earnings overseas, which affects remittance inflows. While the recent relaxation on equity investment abroad by the State Bank of Pakistan has provided some relief, the ministry underscores the need for additional policy changes to ease financial transactions and facilitate growth in the IT sector. Further, the report outlines that current travel policies have also posed challenges for IT and ITeS professionals, as limited travel flexibility impedes both inbound investments and outbound client interactions, restricting market growth. Another major constraint identified is the shortage of skilled human resources, with the ministry pointing to a significant gap between the demand for skilled professionals and the supply of graduates with the requisite technical expertise. Although approximately 75,000 IT graduates enter the workforce each year, fewer than 10% possess the skills necessary for export-oriented roles, largely due to inadequacies in training programs. This shortage not only impacts productivity but also limits the ability of IT and ITeS firms to compete in international markets. The absence of IT-ready infrastructure is also highlighted as a key barrier to growth, particularly in secondary and tertiary cities where affordable technology parks and infrastructure are lacking. This scarcity restricts IT firms from scaling their operations effectively, resulting in lost opportunities for both domestic and international expansion. Additionally, limited access to capital for IT small and medium enterprises (SMEs) is cited as a fundamental hindrance, with most SMEs unable to secure the funding needed to scale their operations and reach broader markets. The ministry’s report further stresses the need for enhanced international marketing and business development to promote Pakistan as a preferred outsourcing destination. Current promotional efforts are insufficient, according to the report, with the sector requiring substantial funding increases to strengthen Pakistan’s global presence. While Pakistan’s IT & ITeS sector saw a 24% rise in export remittances, totaling $3.223 billion in FY2023-24, the report calls for long-term, focused fiscal incentives to encourage companies to bring more of their foreign earnings to Pakistan, which could help alleviate national fiscal pressures.