EDITORIAL: It’s very important to digest some IT (Information Technology) sector statistics before understanding the IT minister’s concerns about FBR (Federal Board of Revenue) and SBP (State Bank of Pakistan) policies, disrupting its trajectory right at the takeoff stage.
IT export remittances, including telecommunications, computer and information services, rose to an all-time high of $2.616 billion in fiscal year 2021-22, a 24 percent year-on-year jump. The figure was $235 million in June 2022, 11 percent higher than the June 2021’s $210 million.
Also, there was a 28 percent month-on-month rise in June 2022, compared to $183 million in May 2022. All this explains why the IT sector dominated the headlines throughout last year; full of stories about unprecedented levels of venture capital finally coming to Pakistan and raising hopes of making it the backbone of the export sector. Yet, unfortunately, it’s fizzling out rather quickly.
It turns out that tax and incentive policies of SBP and FBR do not appreciate the intricacies of this sector, where professionals can work in this country but register their companies and park their profits in places that offer better opportunities to nurture their growth and earnings.
IT Minister Syed Aminul Haque has been able to identify this problem just when it’s threatening to take the wind out of this sector’s sails, but he will have to act very quickly because it’s not going to be easy, or even possible, to lure local talent back once it’s firmly settled elsewhere with much better returns. Right now, while other countries tweak their rules to attract just such professionals, we have laws that actually disincentivise qualified people who want to work in their own country and contribute to the health of the exchequer; which is ridiculous.
Let’s not forget that these difficulties are in addition to the already toxic and uncertain political climate that drives investment away in a hurry. The minister is very right to note that “it is necessary to relax strict conditions including tax enforcement and give maximum relaxation to the IT industry and freelancers, otherwise, it is feared that…the industry will shut down soon”.
Yet just the other day, the ministry was eyeing $5 billion in IT exports in the ongoing fiscal, so he’s sure to understand what kind of slippery wicket he’s forced to play on right now. He must also be aware, no doubt, that making the right moves in this instance would not matter much if they are delayed beyond a certain point. So far, the first thing Pakistani IT professionals do upon completing their degrees is look for opportunities to work in countries where their talent and degrees fetch them the right kind of rewards. The next best thing is to register their outlets in such countries or even freelance for them.
It is unfortunate that Pakistan has not been able to develop the kind of IT strategy that could, and would, have led to stellar growth in the sector and relieved pressure on national reserves.
But now that the problem has been identified, it is hoped that the government will move with exemplary speed, gather all stakeholders on one platform, and hammer out the kind of policies that are desperately needed. Just this week the State Bank of Pakistan (SBP) reported that Pakistan’s current account deficit swelled to $17.4 billion in FY22, compared to $2.82 billion in FY21, which is perhaps the hardest shock for an economy already beset by imbalances of all sorts.
It’s pretty clear, therefore, that our present export basket is not going to do the trick and if we cannot think out-of-the-box even now, then there’s no hope of saving the economy from complete ruin.
The balance of payments, the current account, and the health of the rupee are all principally contingent upon healthy export growth that brings foreign exchange into the country. Bolstering the IT sector was a good way of meeting some of these challenges. Regrettably, it seems this opportunity will also go begging.
Copyright Business Recorder, 2022
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