Ishaq Dar refuses tax exemption on IT exports – Business

ISLAMABAD: Government rejected IT industry’s request to waive ‘negligible’ tax on its services to prop up sector’s failing exports, but agreed to provide maximum facilitation, including exemption from auditing by tax authorities.

Chairing a meeting of the IT sector on Sunday, Finance Minister Ishaq Dar observed that the effective tax rate on the sector was around 0.25%, which was “peanuts”. He said people should develop the habit of paying taxes on their income instead of claiming exemptions. A tax of 2.5 rupees on exports of 1,000 rupees is “nothing”, Mr Dar said.

However, he promised that IT professionals exporting their services would not receive tax notices from the Federal Board of Revenue (FBR) and that their tax returns would not be subject to audit in order to minimize their revenue costs.

Moreover, he also ordered the FBR to set up a unit where dedicated agents act as a one-stop-shop and handle IT sector refund and tax credit cases to reduce hassles.

Call the 0.25 pc levy “peanuts”; asks people to develop the habit of paying taxes

Finance Minister Dar is the Chairman of the Prime Minister’s Task Force on Information Technology and Telecommunications. The task force meeting was also attended by IT Minister Syed Aminul Haque, Special Assistant to the Prime Minister (SAPM) for Youth Affairs Shaza Fatima Khawaja, SAPM for Finance Tariq Bajwa, State Bank Governor Jameel Ahmed, Finance Secretary Hamid Yaqoob Shaikh, IT Secretary Mohsin Mushtaq and the Chairman of FBR and Pakistan Telecommunication Authority.

Informed sources said that the IT Ministry discussed with the task force a host of challenges crippling the software export industry.

It was explained that when the tax exemption in the IT sector expired, the PML-N government under former Prime Minister Shahid Khaqan Abbasi replaced the tax exemption with 0.25pc full tax and final. This could not be implemented due to traditional challenges with tax authorities and tax notices began to be sent to high profile companies like S&P Global.

In addition to this, the government, in the 2021-2022 budget, reduced the withholding tax on income for the sector from 12% to 10% with the promise that it would be reduced to 8% in the next financial year. As additional spectrum sales and other expansions, the RBF was able through the December 2021 mini-budget to instead raise the withholding tax on income to 15% on the assumption that the International Monetary Fund wanted this tax increases instead of a promised sliding scale.

The IT sector and the ministry had agitated that this had crippled the sector, leading to a drop in exports of a few million dollars in the first months of this financial year compared to the period of the previous year.

Conversely, the Ministry of IT advocated that an export reward system be offered to software and IT services exports at a rate of at least 5% as they were face value professionals but would be encouraged to declare their income for remuneration.

The department told the task force that not only were IT professionals dissatisfied with RBF’s tactics, but that the implementation of a policy to allow 35% of revenue to be used export for marketing purposes had not entered into force.

He explained that unlike manufactured goods which can be tracked due to their physical exports, IT export earnings could be easily parked overseas through established outlets in Singapore, Dubai and other countries. other destinations in the Middle East. In such a situation, the government may also face difficulties in rolling out the 5G telecom spectrum licenses.

Posted in Dawn, October 24, 2022

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