IT incentive package on the cards

Duty, tax breaks expected to push IT exports to $15b in next two years

ISLAMABAD:

An incentive package is expected to be announced for the information technology and telecom sector in the upcoming budget to give a big push to IT exports and meet the remittances target of $15 billion in the next two years.

These incentives include exemption from duties and taxes on the establishment of cloud infrastructure. The IT ministry has submitted the proposals to the Federal Board of Revenue (FBR).

Other proposal is the grant of 0.5% of annual IT export revenue to the Pakistan Software Export Board (PSEB) for promoting exports.

The ministry also requested the government to exempt the telecom sector from the State Bank of Pakistan’s (SBP) regulation of 100% Letter of Credit (LC) margin, which was announced on April 7, 2022.

The ministry sought the reduction in duties and taxes on laptops and other IT equipment as well as rationalisation of advance income tax on telecom services to 8%.

It suggested that sales tax on laptops and IT equipment should be brought to zero, and federal and provincial services tax on telecom services should be rationalised and harmonised.

The ministry will take the matter of federal and provincial services tax to the Council of Common Interests (CCI) – an inter-provincial body.

According to sources, the IT ministry had submitted the proposals to the federal cabinet, chaired by Prime Minister Shehbaz Sharif. The cabinet directed the ministry to come up with comprehensive, specific proposals keeping in view the $15 billion IT export target.

During discussion, the prime minister told the IT and Telecom Division to draw up a plan for enhancing IT exports to $15 billion in the next two years.

It was pointed out that the presentation was received in the last hour, denying cabinet members ample opportunity to study the proposals.

Cabinet secretary argued that instructions had repeatedly been issued to the ministries divisions to submit their summaries and presentations well before the cabinet meeting and in accordance with the Rules of Business 1973, but violations were being made.

He pointed out that seeking decision of the cabinet on the basis of presentation was not permissible under the Rules of Business as all decisions were to be made on the basis of a summary.

He advised that the cabinet may accord, in principle, approval and the IT and Telecom Division should present its proposals to the Economic Coordination Committee (ECC) after consultation with the relevant stakeholders, wherever a financial decision was being sought, for detailed discussion.

The IT and telecom secretary gave a presentation on “Software exports – performance and expected growth”, after which the cabinet directed the IT and Telecom Division to submit its specific proposals to the ECC, keeping in view the target of enhancing exports to $15 billion.

The IT secretary highlighted the potential of human capital, saying that the freelancers in Pakistan were the second largest in terms of software development and technology.

He pointed out that Pakistan had more than 600,000 IT professionals and every year around 26,000 IT graduates and engineers were entering the market. At present, there are 231 Higher Education Commission (HEC)-recognised universities.

The IT secretary told the cabinet that IT exports and remittances increased from $0.8 billion in 2013-14 to $2.1 billion in 2020-21. In FY22, the exports and remittances are likely to touch $2.8 billion.

The government has worked on human resources development with short, medium and long-term interventions in collaboration with the IT industry. Work on infrastructure which includes software technology parks, IT parks and broadband availability is underway.

There are also proposals for providing easy access to capital and collateral-free business loans.

The government has worked on business development, trade, delegation and IT business-focused campaign. It is also working on branding, industry white papers and sector-specific feasibility reports.

The government is making efforts to boost international collaboration by expanding business ties with the existing top export partners and signing double tax avoidance treaties.

IT ITES companies and freelancers have been provided special foreign currency accounts with 100% retention in foreign currency for IT firms. Freelancers have been allowed to retain up to $200,000 and unrestricted movement of foreign exchange.­­

Published in The Express Tribune, May 25^th, 2022.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.