Several players in the nascent domestic information technology (IT) industry have been calling for increased government support through tax exemptions and skills development programmes, noting that the country is unlikely to otherwise be able to compete with a host of other countries, most notably India. While IT is among the industries that have turned around economies around the world, the level of support being demanded is astounding at a time when the entire economy is struggling and international donors are pressuring the government to increase direct tax revenue.
Pakistan Software Houses Association (P@SHA) has called for a laundry list of benefits that include exemptions from income tax, tax on dividends, capital gains tax, and even profits. While we can’t fault them for trying, the government would do well to ignore the majority of these recommendations, not just because of the ongoing cash crunch, but because other Pakistani industries and entrepreneurs have proven that blanket tax breaks have brought little to no benefit to the broader economy, and usually only benefitted owners and investors. While many in the industry point to India, most exemptions allowed by New Delhi only apply to start-ups, and established companies are expected to hold their own. Here, even big players want preferential treatment.
However, there were some more legitimate requests, including forex exemptions to ensure software companies have easy availability of dollars — the industry is mostly export-oriented but still needs to regularly make payments in dollars. Other forms of red tape should also be cut out since IT business activities are literally digital and well-documented, allowing for after-the-fact oversight or audits, if necessary. And even though most IT jobs do not resolve poverty in the short run because they require a relatively high level of education, long-term training programmes could help, as long as graduation rates align with industry growth; otherwise, we will only saturate the market and create a costly new employment crisis.
Published in The Express Tribune, June 9th, 2023.
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