IT industry in doldrums

Current budget has jolted the booming sector

The Information Technology (IT) industry of Pakistan’s growth rate has drastically dropped from 47% to 27% whereas the booming freelancing IT exports with 100% growth rate has taken a nosedive to 16%.

Moreover the sales tax and duties on computers and accessories has impeded the growth of the booming IT sector and e-commerce.

According to Badar Khushnood, Chairman Pakistan Software Houses Association for IT and ITeS (P@SHA), the former Prime Minister Imran Khan along with his team had approved the demand of IT stakeholders to exempt the industry, and a summary in this regard was also moved but unfortunately the “no confidence motion” against the then PTI government was successfully moved which halted the process and the Federal Board of Revenue (FBR) did not notify the cabinet’s approval.

The current coalition government despite of promises did not take up their predecessor’s decision that severely jolted the booming IT industry.

Khushnood has said that they got unparalleled and commendable support from the former IT Minister, Amin-ul-Haq and his team at the MoITT and did all the needful to give a boost to the industry and also assured of keeping it “tax exempted” till 2025.

Despite the promises to carry on the decision made by former government the budget draft by the current Finance Ministry has failed to reflect the positive outcomes of this exemplary public-private sector collaboration. “It is important to highlight that not a single demand of the IT industry has been met in this budget. Moreover, previously announced packages have not been implemented yet, and abrupt damaging changes have been made”.

He also said , “The currently implemented regressive taxation regime has already proven disastrous for the IT industry’s growth. This year’s targeted exports of USD 3.5 billion are also not being achieved due to the introduction of an inefficient tax regime. Rather than facilitating the industry with more and better incentives to catalyze the existing organic growth, the previously announced one and the only benefit, i.e. ‘tax exemption’ committed till 2025 has been abruptly revoked.

The IT industry appears to be the latest casualty of Pakistan’s political and economic turmoil. As the sole industry representative body, P@SHA vehemently disapproves the current budget draft and is wary of the Cabinet and Ministry of Finance’s understanding of the IT industry’s dynamics in the global context.

Supporting the livelihoods of 600,000 professionals & freelancers and over 10,000 companies, the IT industry has proven to be the fastest-growing industry in Pakistan. It has demonstrated the potential to address the current account deficit with a strong, self-reliant, and sustainable financial future for Pakistan.

The industry with unique distinction of being Pakistan’s only export industry with a 75% trade surplus, in 2021, crossed exports of over USD 2.1 billion. Since the key raw material for IT exports is ‘skilled human talent’ which is already available in the country so there is no need for any imports to grow IT services exports.

In 2022, the IT industry was tipped to become the 2nd largest export sector crossing all traditional sectors, while the 1st position is maintained by the textile industry) but the announced budget has spoiled the party for all.

The industry’s outstanding performance has been met with a resounding and callous attack on its survival in the form of an anti-IT budget. It has called into question the future of Pakistan’s digital i.e. IT, ITeS, startups, freelancers, and the e-commerce industry. Rather than ensuring ‘continuity of policy, the budget draft has not only spread a wave of uncertainty and disappointment in the IT industry but has also created doubts about the government’s understanding and political will to support the only sector that has the potential to solve Pakistan’s economic crisis in the shortest possible time with the least amount of resource requirements.

Unlike traditional industries, the knowledge economy operates differently. Drastic changes in policy  not only creates uncertainty and a state of panic about inconsistent policies but also raises questions internally and internationally about the government’s understanding of the gravity of the situation and how its policies will jeopardize IT industry growth. It must be noted that the operations of the IT industry often involve foreign clients. Such budgetary changes breed investor skepticism and discourage foreign companies from bringing investments and capital to Pakistan.   Compared to Pakistan, other countries in the region have established a mature ecosystem through supportive government policies. P@SHA strongly advocates that the IT industry be provided a favorable environment. Pakistan’s IT industry has already proven its growth potential to transform Pakistan while also creating over 100,000 jobs every year.

Khushnood concluded, “We are left with a very short window of opportunity before it’s too late and hope that the decision-makers at the highest level will understand the IT industry’s challenges and facilitate continuity of policy for a better and stronger Pakistan”.

According to Asif Yousuf Vohra, ex vice President of Pakistan Computer Association and Ex General Secretary, Techno City Mall Owners Welfare Association in spite of taxes the sale of computers and accessories has increased up to 25% and it went up to 35% in the time of pandemic. “Today, the entire world is heading toward digitization and e-commerce. In this situation, a total repeal of the tax on computers and other peripherals would significantly advance the IT industry.” He reiterated that by giving the status to IT gadgets of tax and duty free enhances the IT export and will ultimately bring multiplied dollars back to the country.

He also highlighted that the booming e-commerce and IT exports is significantly relying on the availability of fast computers and internet. Taxes and price hikes preventing consumers from buying high-end, pre-built gaming personal computers (PCs). The differences between a gaming PC and a standard PC are comparable to those between a Ferrari and a Chevrolet: both will get you where you need to go, but one will do so much faster. Standard PCs are made for simple tasks like web browsing, document authoring, and movie streaming. Even modest gaming is possible on a standard PC. However, complex jobs are difficult for conventional computers to complete and require a lot of processing power. For example, graphic design, music production, crypto mining, and serious gaming require better processors.