IT industry: Higher taxation to give big boost to brain drain: FPCCI

KARACHI: Atif Iqbal Sheikh, President FPCCI, has raise concerns over the recently announced federal budget 2024–25 vis-à-vis information technology industry; stating it will worsen brain drain situation in the IT industry due to higher taxation, stifling growth and innovation.

Atif Ikram Sheikh added that FPCCI emphasizes, despite repeated assurances from the incumbent government, the budgetary proposals from the IT industry have been completely ignored.

The FPCCI Chief said that the new finance bill confirms two things; one, the finance division’s short-sightedness vis-à-vis IT industry and that it will derail the IT industry.

He acknowledged that over the past 10 days Pakistan Software Houses Association (P@SHA) has expressed its concerns on various platforms, including national and international media and decision-making forums.

Saquib Fayyaz Magoon, SVP FPCCI, apprised that P@SHA was also invited to present its position during a crucial meeting of the Standing Committee on Finance and Revenue. The association highlighted that the higher income tax burden on the salaried class could lead to a brain drain.

This issue is compounded by the remote worker tax regime, which undermines the government’s goal of increasing revenue and expanding the tax net.

Saquib Fayyaz Magoon highlighted that PKR. 79 billion allocated in the budget is primarily for government projects and IT parks; neglecting the broader IT industry. The situation regarding taxes and human resource availability is already alarming and P@SHA has consistently presented relevant proposals to the government.

P@SHA draws attention to tax anomalies faced by IT exporters.

These exporters, under the Final Tax Regime (FTR), face additional tax rates on payments abroad, hampering their efficiency and competitiveness. P@SHA proposes avoiding double taxation; promoting the use of Exporters Special Foreign Currency Accounts (ESFCAs) and making ESFCAs more attractive for IT companies.

Muhammad Zohaib Khan, Chairman Pakistan Software Houses Association (P@SHA), maintained that one key issue is that remote worker tax regime further undermines the government’s revenue goals.

Remote workers, often paid in foreign currencies, face lower tax burdens compared to domestic employees, incentivizing companies to reclassify senior staff as remote workers – leading to inefficiencies and tax revenue loss.

Zohaib Khan added that to address these discrepancies, P@SHA proposes a competitive tax rate for payroll, such as a flat 5%, for P@SHA and PSEB-registered IT companies.

This would encourage formal employment and prevent talent drain. Additionally, implementing clear policies to ensure remote-workers’ pay their fair share would create a level-playing field for local businesses.

Zohaib Khan stressed that P@SHA puts forward the need for reforms to facilitate smoother foreign remittances for the IT industry and broader economy. The association points out anomalies in current tax laws, such as increased GST on laptop and desktop imports – depicting a bleak future for Pakistan’s IT industry.

Copyright Business Recorder, 2024