Tax Exemption for IT Industry will Open New Avenues of Prosperity for Pakistan

From the last 3 years, PTI government has remained quite vocal about the digital inclusion and has taken various steps in order to take Pakistan to next level when it comes to innovation in IT sector. After many initiatives for this cause, recently, Prime Minister Imran Khan announced a complete tax exemption for Information Technology (IT) companies and freelancers for the next five years. Hence, he has reverted the earlier status of IT industry as tax-exempt. Tax Exemption for IT Industry is big step to encourage IT related projects and freelancers to set up their own businesses.

Besides the 100 percent capital gain tax exemption on the new IT startups, the government has also decided to ease out the foreign exchange restrictions for the IT industry. Previously, the IT startups and freelancers used to start their businesses but could not sustain the foreign exchange limitations and finally move to shutdowns. Few days back Prime Minister took notice of the situation and decided to give a good package for the IT startups so that this industry flourish. This is the IT era and those countries succeed that have good booming IT industry which is evident from India’s flourishing and one of the largest Entrepreneur market  and IT infrastructure.

Tax Exemption for IT Industry will Open New Avenues of Prosperity for Pakistan

In the past the IT companies and the freelancers used to face the biggest issue of inflow and outflow of foreign currency. This issue has been addressed by the government. Now the freelancers will be encouraged to meet their operational needs through proper banking channels and get full money. In this regard, Specialized Foreign Currency (FCY) accounts have been introduced for IT/ITES companies and freelancers. In this way they will get 100 percent remittances received through proper banking channels in FCY accounts and there will also be no compulsion to get the money converted into PKR. The outward remittances from FCY accounts will also be facilitated by lifting up the restrictions. For the proper use and attainment of FCY accounts, the IT/ITES and freelancer companies need to get registered to Pakistan Software Export Board (PSEB).

This reform will also be helpful for the company’s’ stakeholders. In the past, as this sector was under double taxation and services were charged under double taxation. When profits were to distribute among the stakeholders, they used to be minimal. This reform also aims to resolve issues faced by the stakeholders on board.

The tax exemption for the IT/ITES firms and freelancers for five years will be done by amendment in the Income Tax Ordinance 2001 and will get implemented soon by April 2022.

Tax Exemption to IT Industry will Promote Foreign Remittances in Pakistan

Prime Minister further directed State Bank of Pakistan to introduce proper financing streams for the IT/ITES sector and for the freelancers keeping in view the operational architecture. All the firms are suggested to get registered to avail the tax relief advantage. This step is also an effort to encourage the IT and ITES to bring in their foreign remittances in the country.

This will also give ease to the people who have foreign remittances parked in offshore accounts. These reforms are an attempt by the government to encourage foreign businesses and venture capital firms to invest in Pakistan and also Pakistani startups will create new job opportunities for people of Pakistan.

Also Read: MoITT Proposes Tax Exemptions for 10 years for Freelancers

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Fizza Atique

Fizza Atique is a Tech writer specializing in the intersection of tech and culture. She likes photography, VR, electronic music, coffee, and baking.

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