Despite encouraging signs of export potential in the information technology (IT) sector and the government’s acknowledgment, the sector has fallen short of its export capacity.
According to the State Bank of Pakistan (SBP) data, IT exports during July-March FY22 surged to $1.948 billion at a growth rate of 29.26% in comparison to $1.5 billion in the same period of last year. This includes telecommunication, computer and information services.
Though the IT sector has the potential to grow in three digits, Pakistan, which is in dire need of foreign exchange, could not push the sector’s growth beyond two digits despite claims of successive governments.
During the first 10 months of FY22, the IT sector made exports of $2.2 billion, contributing 38% to the overall services’ export and marking a 29% year-on-year jump, Arif Habib Limited (AHL) Head of Research Tahir Abbas told The Express Tribune.
The government had been focused on increasing IT exports whereas the idea of establishing an IT park with significant tax benefits was also being explored, he added.
“We believe that continued expansion in the industry will aid the topline growth, which will further be supported by the US dollar appreciation as most companies have a dollar-denominated revenue stream,” said the analyst.
Trade surplus for industry
According to the Economic Survey, Pakistan’s IT Industry is the largest net services exporter with exports to 169 countries as compared to the rest of the services sector.
The Ministry of Information Technology (MoITT) supports all credible private sector initiatives aimed at bolstering the IT industry and attracting foreign investment.
The government comprehended that MoITT has an important role in terms of providing a conducive environment to the IT industry through infrastructure and HR development
The government’s incentives for the IT sector include a 100% tax credit on export income from IT and IT-enabled services until June 30, 2025, along with 100% tax credit on profits and gains derived by the IT start-ups for the tax year in which a start-up is certified by Pakistan Software Export Board and for the next two years.
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The authorities have assured 100% equity ownership allowed to foreign investors, coupled with 100% repatriation of capital and dividends allowed, and tax holiday for venture capital funds till 2024.
The government has also provided growth-driven financial incentives for IT and ITeS export remittances. The main purpose of the financial incentive scheme is to encourage IT and ITeS export remittances through formal banking channels and improve reporting of export remittance receipts in correct IT and ITeS purpose codes, assigned by the SBP.
The government has allocated Rs4 billion to PSEB for the financial incentive on IT and ITeS export remittances to be disbursed on the basis of export remittance receipts in FY2021.
Establishment of IT Park
A loan agreement was signed between the Economic Affairs Division and EXIM Bank of Korea worth $158 million for the establishment of Pakistan’s largest IT Park in Karachi. The total cost of the project is estimated at $186 million and would take 48 months to complete.
According to the survey, the IT Park building would have 14 floors with a gross floor area of 106,449 square metre park with the latest state of the art facilities to ensure that IT companies can operate 24/7 providing services to clients around the globe. In addition to office space, the park would have software testing labs, business incubation centers, technology commercialisation centers, exhibition halls, auditorium, daycare center and other ancillary facilities.
The IT Parks are a particularly massive scale project in order to bring this vision to action. The Government must realise the importance of consistency in IT policies as rapid changes greatly hamper and cause instability in conducting business, said Si global CEO Noman Ahmed told the ET.
The only way forward is through widespread technological education to inspire the youth and shape them, inculcating technological innovation at the grass-root level and introducing IT courses and syllabi across the country, he added.
Policy intervention
The government has focused on infrastructure development through the establishment of Software Technology Parks (STPs) STPs have been a major factor in facilitating IT and ITeS companies. There is a strong demand for STPs in the country due to the booming IT industry.
To meet the demand, STPs are being setup on a public-private sector partnership basis. PSEB is also setting up STPs through the conversion of unused buildings into STPs with a particular focus on secondary and tertiary cities of Pakistan.
This would expand Pakistan’s tech ecosystem beyond Islamabad, Lahore and Karachi, thus contributing to the local economies through expansion of the tech industry, export earnings growth and employment generation. As of December 2021, PSEB has 21 operational STPs with 1.25 million square feet of space serving 170 IT and ITeS companies.
Published in The Express Tribune, June 10th, 2022.
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