The government has rejected an IT industry request to waive a “negligible” tax on its services in order to boost the industry’s sagging exports, but it has agreed to offer the greatest amount of facilitation, including immunity from tax authority examination.
Ishaq Dar, the finance minister, made the comment while presiding over a meeting of the IT sector on Sunday. He described the sector’s effective tax rate as “peanuts” at roughly 0.25 percent. He said that rather than requesting exemptions, people should get into the habit of paying taxes on their income. According to Mr. Dar, a tax of Rs2.5 on exports worth Rs1,000 is “nothing.”
However, he made a commitment that IT experts who export their services won’t receive tax notices from the Federal Board of Revenue (FBR) or have their tax returns audited in an effort to reduce their revenue cost.
In order to minimize difficulty, he also instructed the FBR to establish a unit where specialized personnel serve as a one-window facility and handle refund and tax credit matters pertaining to the IT sector.
The Prime Minister’s Task Force on Information Technology and Telecom is led by Finance Minister Dar. Additionally present at the task force meeting were the chairs of the FBR and the Pakistan Telecommunication Authority, State Bank Governor Jameel Ahmed, Finance Secretary Hamid Yaqoob Shaikh, IT Secretary Mohsin Mushtaq, Special Assistant to the Prime Minister (SAPM) on Youth Affairs Shaza Fatima Khawaja, and SAPM on Finance Tariq Bajwa.
According to reliable sources, the task force was assigned by the IT ministry to address a number of issues that were impeding the software export industry.
According to the explanation, the PML-N administration of previous prime minister Shahid Khaqan Abbasi restored the tax break for the IT sector when it expired with 0.25 percent of full and final tax. Due to ongoing issues with the tax authorities, this could not be executed, and tax notices began to be sent to prestigious businesses like S&P Global.
Additionally, the government cut the advance income tax for the sector from 12 percent to 10 percent in the budget for 2021–2022, with a pledge to lower it to 8 percent in the next fiscal year. The International Monetary Fund wanted this tax to grow rather than the stated sliding scale, therefore the FBR was permitted to do so through the December 2021 mini-budget in lieu of new spectrum sales and other expansion.
The ministry and the IT sector had been complaining that this had paralyzed the sector and caused a decrease in exports of a few million dollars in the first few months of this fiscal year compared to the same period last year.
The IT ministry, on the other hand, argued that because software and IT services exporters were low-value professionals who should be encouraged to report their earning flows for reward, an export incentive program should be granted to them at a rate of at least 5%.
The ministry informed the task force that the license to use 35% of export revenues for marketing purposes was not yet in effect and that IT specialists were not the only ones who disapproved of FBR’s techniques.
It detailed how IT export revenues may be readily stashed abroad through outlets set up in Singapore, Dubai, and other Middle Eastern locations, in contrast to manufacturing items, which can be followed due to their physical exportation. The government may encounter difficulties in this case when distributing 5G telecom spectrum licenses.