New taxes threaten the stability of the IT sector

ISLAMABAD: The 2024-25 budget imposes higher income taxes on skilled workers, which could result in a significant brain drain that could seriously harm the information technology (IT) sector. Moreover, according to IT specialists and experts, the general sales tax (GST) on IT equipment has doubled from 5% to 10%, hampering digitalization efforts. They warn that these new taxes may paralyze the growing IT industry.

Professor Tahir Mahmood Chaudhry, chairman of the Computer Society of Pakistan (CSP), has expressed concerns about the future of the IT sector. He highlighted the sector’s potential to generate 15-30% of IT export revenues to reduce dependence on the International Monetary Fund (IMF) and the World Bank (WB). The fluctuating US dollar benefits local IT companies receiving international payments, but transferring money from Pakistan to other countries remains a challenge due to stringent regulations.

Chaudhry criticized the government’s fiscal policy, noting that taxes are being levied on funds transferred from abroad to Pakistan even though the amounts are already taxed abroad. He also highlighted the financial burden of new taxes on computer equipment, which IT companies must buy at high exchange rates.

Muhammad Zohaib Khan, chairman of the Pakistan Software Association (P@SHA), shared these concerns. He lamented that the budget ignored P@SHA’s proposals to develop the IT sector, burdening the skilled salaried class with higher income taxes, which could result in brain drain. Khan pointed out that the allocated amount of Rs79 billion is mainly for government projects and IT parks, without taking into account salary incentives crucial to supporting remote workers. He argued that the GST hike on IT equipment would hamper digitalization efforts, undermining the government’s promises to support IT development.

Khawaja Fahad Shakeel, artificial intelligence strategist and CEO of Workforce Commerce, warned that changes to income tax rates will lead to the loss of highly skilled IT staff, pushing professionals to freelance and leaving local IT companies struggling with the tax burden. He stressed that professionals earning between Rs 800,000 and Rs 1 million per month will now have to pay taxes of Rs 300,000 to Rs 350,000, which will accelerate the brain drain and adversely impact the IT sector’s growth trajectory from 2022.

Dr Noman Said, CEO of SI Global Solutions, has criticized the increase in GST on laptops from 5% to 10%, arguing that it will hurt both consumers and the technology industry. He highlighted the increased challenges facing the computer hardware manufacturing sector, which lacks a clear vision and effective measures to reduce gray market products. Said stressed that compliant businesses and consumers face higher costs, giving non-compliant entities an unfair advantage. He called for a balanced approach and stronger enforcement to prevent legitimate market growth and technological progress from being stifled.

These expert views highlight the urgent need for policy changes to secure the future of the IT sector. The government’s current tax strategy risks short-term financial gains at the expense of the industry’s long-term stability and growth, which is crucial to Pakistan’s economic development.