Pakistan Software Houses Association (P@SHA) has maintained that the federal government’s Budget 2025-26 may be remembered not for what it promised—but for what it fatally ignored as for Pakistan’s IT and IT-enabled Services (ITeS) sector, this budget is not just a disappointment; it is a threat.
A quiet but decisive blow to an industry that has carried the hopes of export-led recovery; youth employment and digital transformation.
An industry that today employs over 600,000 young Pakistanis—one of the country’s largest and most vital pools of skilled talent.
Yet in a stunning act of neglect, the budget fails to address two urgent and long-standing demands from the sector: first, a defined and fair taxation framework for remote workers; and second, the continuation—and expansion—of the current tax regime for formal IT exporters.
What the industry has consistently asked for is not a one-time concession or patchwork relief, but a stable, 10-year tax policy framework—one that allows companies to invest, grow and compete with global peers. That ask has been ignored.
For over a year, the Pakistan Software Houses Association (P@SHA) has warned of a growing imbalance. High-earning remote workers employed by foreign companies; often indistinguishable from full-time employees, remain largely untaxed.
Meanwhile, companies based in Pakistan, employing and training local talent, are taxed, audited and over-regulated. This makes local hiring more expensive; while incentivizing capital flight and informal arrangements.
Talent retention is collapsing; export dollars are being parked abroad, and formal firms are bleeding value.
The government’s refusal to act is particularly frustrating given the simplicity of the proposed solution: P@SHA has recommended classifying any individual earning over PKR 2.5 million annually from fewer than three foreign sources as a remote worker.
This affects only the top 5% of earners and avoids harming freelancers and small remitters.
The State Bank already tracks the necessary data. This is a policy that could be implemented overnight—yet has been ignored for years.
Worse still is the government’s failure to extend the existing tax regime for exporters.
This regime was the foundation for over $700 million in investment commitments secured through the Digital Foreign Direct Investment (DFDI) initiative. The country spent hundreds of million of rupees to secure this investment.
Sadly, with no continuity in tax policy and those investments are now in jeopardy. Foreign investors will not engage with a country where rules shift every year.
This is not just bad policy—it is a signal to the world that Pakistan’s digital economy is not ready to be taken seriously.
The results will be devastating. Pakistan’s IT sector—its fastest-growing, most globally competitive industry—may lose its momentum entirely.
Export growth will stall; jobs will disappear and the government’s dream of reaching $25 billion in IT exports will not just be delayed—it will become permanently out of reach.
Budget 2025, in its current form, is a direct threat to the survival of the formal tech ecosystem. It penalizes compliance; discourages investment and incentivizes informality.
The government must act—quickly and decisively—before irreparable damage is done.
This is not about incentives anymore. It is about preserving one of Pakistan’s only working economic success stories. The stakes could not be higher.
