Tax burden on salaried class may lead to brain drain: P@SHA Federal budget to stifle growth, innovation

The Pakistan Software Houses Association (P@SHA) voices strong concerns about the recently announced Federal Budget 2024-25, stating it will worsen the brain drain in the IT sector due to high taxation, stifling growth and innovation.
Chairman of P@SHA, Muhammad Zohaib Khan says that the press conference is aimed to emphasize that despite repeated assurances from the incumbent government, the budgetary proposals from the IT industry have been completely ignored.
The new finance bill confirms two things; one, the finance division’s short-sightedness vis-a-vis the IT industry and dovetailed to that is the death warrant it signed for the industry.
Over the past 10 days, P@SHA has expressed its concerns on various platforms, including national and international media and decision-making forums. P@SHA was 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.
The Rs79 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.
One key issue is the higher income taxes on the salaried class, potentially leading to a talent drain. The 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 freelancers, leading to inefficiencies and tax revenue loss.
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.
P@SHA also highlights 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.
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.
P@SHA remains steadfast in advocating for the IT industry, ensuring the sector receives recognition and support in policy-making decisions.