The Pakistan Software Houses Association has rejected the imposition of 8 percent withholding tax on service providers, saying the step could have disastrous effects on the rapidly growing IT sector in the country. It says that the government has taken various initiatives at the federal and provincial levels for the development of the IT industry, but imposition of tax will undo much of the achievements, which the country has made in the software technology. According to the association, the imposition of minimum tax will halt the momentum of development as the industry is at a nascent stage. Many start-ups are in the pipeline and it will take them three to five years to turn into profitable organizations. According to experts, in case a minimum revenue tax is imposed on them, the service providers will have to pay tax from their initial capital which will not only discourage international, but also local investors, and it will bring another failure in the government’s cap. The experts believe that the effective tax rate under the new regime will range from 94 percent to 188 percent whereas the normal corporate tax rate stands at 32 percent. The matter needs to be resolved as early as possible.
According to the association, the minimum tax regime belies the principles of free market and will adversely affect the development of IT sector in the country. The association demands removal of the tax from the Finance Act 2015 and wants tax exemption on the export income tax until 2026. The IT sector needs government incentives but does not require any special infrastructure. It is the sector which is the future of the country and the future of the young generation. The IT sector can be turned into one of the biggest employment providers in the country. It is the time the government should come from hibernation and study IT sectors in the developed world. Our neighbouring country India is one of the biggest software suppliers in the world and Pakistan also has the potential to grab the world IT market.
It is unfortunate that instead of providing incentive to this vital sector of the economy, the government is taking one step or the other to harm this sector. Earlier, the federal and provincial governments had imposed additional tax on Internet, which fortunately has been withdrawn; however, these kinds of the government steps send wrong signals to the potential investors. There are millions of IT experts in the country and they need government assistance in obtaining software development projects from abroad. There is a need to launch collective efforts to ensure availability of projects to the Pakistani software startups as well as individuals.
