The government has dismissed an IT industry’s demand for waiving a ‘negligible’ tax on its services to support the sector’s faltering exports but agreed to provide maximum facilitation, including exemption from audit by the tax authorities.
Presiding over a meeting of the IT sector on Sunday, Finance Minister Ishaq Dar observed that the effective tax rate on the sector was about 0.25 percent, which was “peanuts”. He said people should develop the habit of paying taxes on their incomes instead of seeking exemptions. A tax of Rs2.5 on exports of Rs1,000 is “nothing”, Mr. Dar said.
However, he made a commitment that IT experts who export their services won’t receive tax notices from the Federal Board of Revenue (FBR) or have their tax returns audited in an effort to reduce their revenue cost.
In order to minimize difficulty, he also instructed the FBR to establish a unit where specialized personnel serve as a one-window facility and handle refund and tax credit matters pertaining to the IT sector.
The Prime Minister’s Task Force on Information Technology and Telecom is led by Finance Minister Dar. Additionally present at the task force meeting were the chairs of the FBR and the Pakistan Telecommunication Authority, State Bank Governor Jameel Ahmed, Finance Secretary Hamid Yaqoob Shaikh, IT Secretary Mohsin Mushtaq, Special Assistant to the Prime Minister (SAPM) on Youth Affairs Shaza Fatima Khawaja, and SAPM on Finance Tariq Bajwa.
Informed sources said the IT ministry had taken up with the task force a host of challenges crippling the software export sector.
According to the explanation, the PML-N administration of previous prime minister Shahid Khaqan Abbasi restored the tax break for the IT sector when it expired with 0.25 percent of full and final tax. Due to ongoing issues with the tax authorities, this could not be executed, and tax notices began to be sent to prestigious businesses like S&P Global.
Additionally, the government reduced the advance income tax for the sector from 12 percent to 10 percent in the budget for 2021–2022, with a pledge to lower it to 8 percent in the next fiscal year. The International Monetary Fund wanted this tax to grow rather than the stated sliding scale, therefore the FBR was permitted to do so through the December 2021 mini-budget in lieu of new spectrum sales and other expansion.
The ministry and the IT sector had been complaining that this had paralyzed the sector and caused a decrease in exports of a few million dollars in the first few months of this fiscal year compared to the same period last year.
The IT ministry, on the other hand, argued that because software and IT services exporters were low-value professionals who should be encouraged to report their earning flows for reward, an export incentive program should be granted to them at a rate of at least 5%.
The ministry told the task force that not only the IT professionals were unhappy with FBR’s tactics, the implementation of a policy that envisaged permission to utilise 35pc of export proceeds for marketing purposes had not come into force.
It explained that, unlike manufacturing goods that can be tracked because of their physical exports, IT exports proceeds could be easily parked abroad through outlets established in Singapore, Dubai, and other Middle Eastern destinations. In such a situation, the government may also face challenges in rolling out 5G telecom spectrum licenses.
