Pakistan’s Budget 2020-2021 Gears towards Development in the IT industry

The budget for the year 2021-2022 has been announced by the government that appears to quite people-friendly. The Prime Minister of Pakistan, Imran Khan said earlier on the budget that ‘everyone will be happy. A lot of grants and tax reductions have been given on various products and different sectors.

Talking specifically about the telecommunication sector, tax reductions have been offered to empower the Information Technology (IT) industry in Pakistan.

Taxes on Mobile Services In Budget

The income tax on the users of mobile phones is reduced from 12.5% to 10% for 2021-2022 and will be reduced further to 8% in 2022-2023. Similarly, telecom excise duty is lessened by 1% as it comes down from 17% to 16%. Also, the payment of Rs 250 on SIM issuance is also abolished with exception of withholding taxes. For telecom companies having PTA licenses, the withholding tax on the services is lessened to 3% from 8%.

The phone calls charges that are more than 3 minutes are set at Rs 1. The rate per SMS is Rs 0.1 and for every GB you will have to pay Rs 5. This decision if actually implemented, will have a positive impact on over 98 million individuals. Additionally, the document states that this important decision is taken to ‘produce reasonable revenue’ from the IT sector and it will give a result of ‘mild taxation of the most population.’ However, after few hours from the budget, Energy Minister denied it by saying there will be no FED on internet services. He tweeted:

Taxation on E-Commerce Stores

As per section 3’s subsection 3, if goods supply is through any online place, the individual that runs that marketplace will be responsible to pay the sales tax whether he owns it or not. There is the proposition of online marketplace definition to be written under Section 2 of (18A). According to this, Online running marketplace comprises an electronic portal, E-commerce platform, or any other means to help goods sales, including the third-person sale, in any of the following manners:

  • By controlling sales terms and conditions
  • Authorizing the charge to customers for payment of the supply
  • Ordering and delivering of goods

Taxes on Exports in Budget

The bill also proposes to add a new section154A for the tax deduction at 1%, in line with the exports proceeding such as:

  • The exports of the IT and IT-enabled services or the computer software in case tax credit is not available under 65F.
  • Technical services outside Pakistan or being exported from Pakistan.
  • Royalties, commissions, or fees by different resident companies from foreign enterprises for outside Pakistan use of any model, secret process, design, formula, or patent along with any sort of commercial/scientific knowledge, skills made available to such enterprise.
  • The construction contracts executed outside of Pakistan.
  • Other services rendered outside Pakistan as notified by the Board from time to time.

Taxes regarding Special Technology Zones

In the bill, there is an exemption to profits produced from the following:

  • Zone developer as described in section 2 of the Special Technology Zones Authority Ordinance, 2020 from development and operations of the zones for a period of 10 years beginning from the signing date of the development agreement.
  • Profits and gains of Zone Enterprises as defined in section 2 of Special Technology Zones Authority Ordinance, 2020 for 10 year period from the date of license issuance by the Special Technology Zone Authority.
  • Special Technology Zones Authority established as per the Special Zones Ordinance 2020.

The bill also exempts dividend income and long-term capital gains of any Venture Capital funds from investment in Zone enterprises as explained in clause (p) of section 2 of the Special Technology Zones Ordinance 2020. The exemption offered for 10 years commencing from the issuance of the license from the authority.

In addition to that, the bill proposes an exception to profits derived by electricity sales by National Power Parks Management Company Limited starting from ownership date from privatization by Privatization Commission.

The concessions and reliefs given to the IT sector are worth applaud and will definitely put our industry on the fast track. But the most monumental and historical decision that has been made in the current bill is undoubtedly is giving the IT sector the status of an industry as it will open up credit lines by SBP and banks.

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