Pakistan’s technology industry received a strong policy push with the Finance Bill 2026-27, a package that industry groups say will improve cash flow, competitiveness and investment prospects for local IT firms. The government extended the concessionary 0.25 percent tax rate for PSEB-registered IT and ITeS exporters through Tax Year 2029 and sharply reduced the advance tax on foreign card payments from 5 percent to 0.5 percent, measures that exporters and freelancers welcomed as immediate relief.
P@SHA noted rapid export growth from $2.6 billion in FY2024 to $3.8 billion in FY2025 and a projection of $4.5 billion for FY2026, representing a 73 percent expansion over two years. The association stressed that maintaining policy stability under the Finance Bill is essential if Pakistan is to meet the government’s longer-term target of $15 billion in IT exports by 2030, which would require sustained annual growth of roughly 22 to 25 percent.
The Finance Bill also introduced a withholding tax exemption for eligible startups under Clause 43F, allowing firms to receive 100 percent of customer payments immediately rather than waiting months for refunds. Industry representatives said this change will ease working capital constraints that previously affected SaaS, fintech and enterprise software startups, where up to 15 percent of invoice value could be withheld for extended periods.
Measures to strengthen digital infrastructure accompany the tax changes. Customs duty on submarine cable landing equipment, CKD and SKD mobile components and SIM card raw materials has been reduced to zero, certified ISPs will benefit from a concessionary 5 percent duty on machinery imports, and advance tax on SIM sales under Section 236CA has been eliminated. The National Telecommunication Corporation has also received withholding tax relief under Section 153, steps that are expected to lower connectivity costs and expand access across Pakistan.
Salaried technology professionals stand to gain from the Finance Bill through the abolition of the surcharge on salaried individuals and an increase in the top threshold for the 35 percent income tax rate from Rs4.1 million to Rs7 million annually, alongside new intermediate slabs. P@SHA outlined illustrative annual savings for employees at various pay levels, noting significant reductions that industry leaders say will help retain talent and improve competitiveness against overseas recruiters.
The super tax for non-banking businesses was rationalized, with the threshold raised from Rs150 million to Rs500 million and the rate reduced from 10 percent to 8 percent above the new threshold, effectively exempting many mid-sized companies from the levy. The Finance Bill also abolished the Capital Value Tax on foreign assets held by resident individuals, a measure welcomed by overseas Pakistanis and professionals with international exposure.
Investment in skills and AI received a clear boost, with allocations exceeding Rs10 billion across multiple programmes: Rs5.29 billion for the Prime Minister’s Youth Skills Development Programme aimed at 120,000 youth, Rs2.61 billion for NAVTTC vocational training, Rs3 billion for the Prime Minister’s Pakistan Fund for Education, and the nationwide AI Seekho 2026 initiative to raise AI literacy among young Pakistanis. P@SHA said these investments will strengthen the digital talent pipeline in the country.
The Finance Bill also brings new compliance requirements that technology companies must address, including a minimum 5 percent withholding on social media income for residents, mandatory banking data reporting for accounts exceeding Rs100 million, faceless audits and algorithm-based settlements, mandatory digital financial statements in CSV, XLSX or XML formats from Tax Year 2026, e-invoicing penalties of Rs1 million for first-time defaults and Rs5 million for repeat violations, and an increase in the ATL late filing surcharge for companies from Rs20,000 to Rs100,000.
While welcoming the positive direction of the Finance Bill, P@SHA cautioned that several structural reforms remain outstanding. Venture capital disclosed equity funding has fallen from $366 million in 2021 to $22.5 million in 2024, and the association reiterated calls for permanent IT export tax exemption, clearer venture capital and private equity regulations, relief for foreign limited partners, and a definitive classification framework distinguishing freelancers from remote employees to attract long-term investment.
Overall, the Finance Bill has been described by industry stakeholders as growth-oriented for Pakistan’s IT sector, delivering immediate tax relief, startup cash flow support, and targeted infrastructure incentives. Achieving the sector’s ambitious export goals, however, will depend on continued policy certainty and deeper reforms to rebuild venture capital activity and attract international partners.
