P@SHA Advocates Permanent IT Export Tax Exemption and Clear Freelancer Classification.

P@SHA maintains IT and ITES exports are projected to reach $4.5 billion in FY 2026, and the budget’s measures are calibrated to sustain this growth trajectory. However, structural reforms needed to attract institutional capital and scale the sector further remain unfinished.

Major Budget Wins:

Taxation and Financial Relief in Budget 2026-27

Concessionary Export Tax Extension: The 0.25% concessionary tax rate on IT exports has been extended through Tax Year 2029, providing crucial policy certainty for multi-year contracts. It was a core P@SHA demand and P@SHA lauds the government on this relief.

Card Payment Relief: The advance tax on foreign card payments has been drastically reduced from 5% to 0.5%, significantly easing the working capital burden on companies and freelancers.

Startup WHT Exemption: P@SHA hails that under Clause 43F, startups are exempt from withholding tax, allowing them to receive 100% of customer payments immediately rather than waiting for FBR refunds.

Some Relief on Salaried Income Tax: The tax surcharge for salaried individuals has been withdrawn, and the threshold for the maximum 35% rate has been raised to Rs. 7 million.

Super Tax Rationalization: P@SHA applauds that income below Rs. 500 million is now fully exempt from the super tax, freeing up capital for mid-sized IT firms to reinvest.

CVT Abolished: The Capital Value Tax on foreign assets of resident individuals has been eliminated.

Telecom, Infrastructure, and Skills

Infrastructure Duties Removed: Customs duties on submarine cable landing equipment, mobile phone components, and SIM/smart card raw materials have been reduced to 0%.

Skills Investment: The government has allocated over Rs. 10 billion for skills and education, including Rs. 5.29 billion targeted at training 120,000 youth in digital skills.

New Compliance Obligations

Social Media Tax: A new 5% minimum withholding tax on social media income has been introduced for residents.

Digital Reporting: IT companies will be required to file digital financial statements in CSV, XLSX, or XML formats starting in Tax Year 2026.

E-invoicing Penalties: Fines for failing to integrate with e-invoicing systems have been increased to Rs. 1 million for the first default.

Unfinished Agenda and Forward Asks

While acknowledging the wins, P@SHA identified key structural gaps that need addressing in future budget cycles:

PE/VC Fiscal Transparency: The budget failed to introduce a pass-through clause for Private Equity and Venture Capital funds, which is critical for attracting foreign institutional investment.

Freelancer vs. Remote Worker Classification: No legislative distinction was made between genuine independent freelancers and full-time remote employees of foreign companies, sustaining a tax loophole that drains senior talent from domestic IT firms.

Permanent Tax Exemption: P@SHA advocates converting the 3-year extension of the 0.25% IT export tax rate into a permanent statutory exemption to align with competing global markets.

The Finance Bill 2026-27 is viewed by P@SHA as a significant and positive step for Pakistan’s IT sector, delivering on critical near-term priorities like export tax stability and payment infrastructure improvements.

Major Budget Wins