Pakistan Software Houses Association has urged the government to introduce tax reforms in the Federal Budget 2026-27 to address what it describes as structural distortions within Pakistan’s rapidly expanding digital economy.
The industry body released a set of policy recommendations focused on improving tax fairness, encouraging sustainable IT export growth, and strengthening the formal technology sector. Among its key concerns is the continued use of a favorable 0.25% Final Tax Rate under Section 154A of the Income Tax Ordinance, which currently applies to all IT export receipts.
According to P@SHA, Pakistan’s IT services exports reached a record $3.8 billion during fiscal year 2024-25, reflecting an 18% increase compared to the previous year. The association also highlighted the rapid growth of the freelance and remote work sector, which contributed an additional $779 million and recorded a remarkable 90% year-on-year increase.
The association argues that while the tax incentive was originally designed to support export-oriented IT companies, the same structure is now being widely used by remote workers and freelancers in ways that create market imbalances and reduce tax equity across the sector.
P@SHA believes the current framework may unintentionally encourage companies and individuals to restructure employment arrangements in order to benefit from the extremely low tax rate. Industry stakeholders say this creates an uneven playing field between formal employers, salaried technology professionals, and independent remote workers operating under export classifications.
The organization has called on the government to revise tax policies in a way that supports genuine export growth while preventing misuse of incentives. It says reforms are necessary to ensure long-term sustainability and transparency within Pakistan’s digital economy.
Pakistan’s technology sector has emerged as one of the country’s fastest-growing industries in recent years, driven by rising global demand for software services, outsourcing, freelancing, and remote work opportunities. The sector is increasingly viewed as a key contributor to foreign exchange earnings and economic diversification.
Experts believe the upcoming federal budget could play a major role in shaping the future competitiveness of Pakistan’s IT industry. Tax policy decisions may influence investment, employment models, startup growth, and the country’s ability to attract international technology contracts.
P@SHA has emphasized that any future reforms should balance industry growth with fair taxation while maintaining Pakistan’s position as a competitive destination for global technology services and digital talent.
