IF YOU LIKE PUT A RING ON
The recent fall in IT exports, Pakistan’s great new hope, is a reality check posing a number of biting questions for the industry and authorities By Ahtasam Ahmad
“W
hat gave India the respect that they are interacting with the world today? It was their IT industry, which is why you people (Pakistani IT industry) are extra important,” Abdul Razak Dawood, the then Adviser for Commerce and Investment, said in January while praising the industry in his address to the Board of Investment (BOI) IT roundtable conference. The optimism from back then may have fallen flat in recent times as IT exports and services for May 2022 were recorded at $189 million – decreasing by 27% compared to April 2022 and 8% from May 2021. The final numbers are still awaited, but the financial year 2021-22’s export target for the sector, around $3.7 billion, is likely to be missed by a massive $1 billion. Many experts anticipated the end of what has been a dream run for the IT sector, primarily because of the unstable rupee and demand slowdown in the two key markets of North America and Europe.“The post-Covid boom in the IT sector was partly because central banks across jurisdictions printed money and governments announced schemes to promote business
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activity. This led to demand creation, which translated into greater interest in the country’s IT sector by foreign businesses,” Asad Ghauri, President Asia-Pacific, and Group MD Europe at NetSol Technologies Inc, told Profit. “Now, the focus is on contractionary measures, and as the funding dries up, demand is likely to plunge, resulting in a difficult next few months for the industry.” Ghauri added. However, the industry has a consensus on the issue that these temporary jitters can do some permanent damage if the structural and policy flaws of the sector are not addressed.
IT sector treated like a stepchild?
T
he reservations of the industry stem from the lack of policy continuity and initiative by the government. An example is the reversal of the tax-exempt status of the sector in March 2021. “IT industry, unlike traditional industries, operates differently. Changing the tax regime in the mid of the fiscal year, despite the original commitment till 2025, creates not only uncertainty and a state of panic about inconsistent policies but also raises questions about
the understanding of the government about the gravity of the situation of how it will jeopardize the growth,” Pakistan Software House Association said in a statement on their website. A new tax regime allowed 100% tax credit for IT exports on complying with certain conditions. This essentially was a zero tax regime but added additional caveats, including getting an exemption certificate that remained valid for six months. It exposed the IT services exporters and freelancers to the Federal Board of Revenue (FBR) and probably the worst type of red tape in the country. Dealing with the FBR is an inconvenience even for the veterans of Pakistan’s business sector, let alone an IT industry still effectively in its nascent stage. The industry saw hope when then Prime Minister Imran Khan announced an IT reforms package in February 2022 that proposed to revamp the IT regulatory framework through key amendments in the upcoming budget. Among the reforms was a promise to streamline IT sector taxation to facilitate technology services companies and freelancers. However, a few weeks later, the government was toppled, and the implementation of the reform package was never followed through. Yet, this is not the only concern of the sec-
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