Pakistan: Information Technology Sector Initiatives

The Government of Pakistan has announced Information Technology sector initiatives with focus to facilitate participants to enhance industry skills, revenue and creation of jobs.

The initiatives are aiming at facilitating various aspects by Easing Forex Retention for IT/ITES (Information Technology/Information Technology Enabled Services) Companies and Freelancers, tax exemptions, establishment of special technology zones and seed funding for IT.

Tax Exemptions:

The following tax exemptions are suggested for IT/ITES Firms and Freelancers:

·         Tax exemption for IT/ITES Firms and for freelancers for 5 years who are registered with Pakistan Software Export Board.

·         Resolution of double taxation of IT firms by defining IT/ITES as services.

·         Reduce Capital Gains Tax on Venture Capital funding into startups to 0 (current 29%) during next 5 years.

Easing Forex Retention for IT/ITES Companies

Offer Special Foreign Currency Accounts (on the pattern of Special Convertible Rupee Accounts) to IT/ITES companies registered with Pakistan Software Export Board with the following features:

·         Only allow dollar deposits against invoices from abroad.

·         100% retention in foreign currency allowed, previously USD were required to surrender to SBP.

·         No restrictions on movement of foreign currency.

·         Facilities of financing using USD balance as collateral. Eligibility for Pakistan Software Export Board’s export remittance incentive scheme to promote conversion to PKR.

Easing Forex Retention for freelancers

Offer Roshan Digital Account type RIDA to freelancers registered with Pakistan Software Export Board with the following features:

·         Only allow dollar deposits against invoices from abroad.

·         Freelancers allowed to retain up to $200K.

·         Remittances above this be converted to PKR.

·         No restrictions on Foreign Currency movement.

·         Facilities of financing, USD balance to be used as Collateral.

·         Account linked with Federal Board of Revenue for auto-filing.

Fast Tracking Special Technology Zones

·         Sectors of Capital Development Authority in Islamabad to be declared as Special Technology Zone

·         Similar concept to be replicated in Lahore, Karachi, Peshawar and Quetta

Seed Funding for Startups

To attract local and international VC funding (Global $643 Billion in 2021) into IT startups creating jobs and bringing forex, seed funding for Startups is suggested with the following features:

·         Pakistan Technology Startup Fund will be established to:

o   Provide seed funding to 30-50 startups annually

o   Rs. 500 million to 1 billion to be invested each year by IGNITE (National Technology Fund)- matched by private investor(s)

o   To be run by a Venture Capital from private sector

o  Overseas Pakistanis will also be invited to participate in the fund