The government has rejected an IT industry request to waive a “negligible” tax on its services in order to boost the industry’s sagging exports, but it has agreed to offer the greatest amount of facilitation, including immunity from tax authority examination.
Finance Minister Ishaq Dar made the comment while presiding over a meeting of the IT sector, calling the industry’s effective tax rate “peanuts” at roughly 0.25 percent. He said that rather than requesting exemptions, people should get into the habit of paying taxes on their income. According to Mr. Dar, a tax of Rs2.5 on exports worth Rs1,000 is “nothing.”
However, he made a commitment that IT experts who export their services won’t receive tax notices from the Federal Board of Revenue (FBR) or have their tax returns audited in an effort to reduce their revenue cost.
In order to minimize difficulty, he also instructed the FBR to establish a unit where specialized personnel serve as a one-window facility and handle refund and tax credit matters pertaining to the IT sector.
The task group was assigned by the IT ministry to address a number of issues that were impeding the software export industry, according to the sources.
According to the explanations, the PML-N administration of previous prime minister Shahid Khaqan Abbasi restored the tax break for the IT sector when it expired with 0.25 percent of full and final tax. Due to ongoing issues with the tax authorities, this could not be executed, and tax notices began to be sent to prominent businesses like S&P Global.
Additionally, the government promised to lower the advance income tax for the sector to 8 percent in the following fiscal year by reducing it from 12 percent in the 202122 budget to 10 percent.
Through the December 2021 mini-budget, FBR was able to raise the advance income tax to 15 percent instead of the anticipated sliding scale since the IMF wanted this tax to rise. This expansion included further spectrum auctions.
The ministry and the IT sector had complained that this had paralyzed the sector and caused a decrease in exports of a few million dollars in the first few months of this fiscal year compared to the same period last year.
The IT ministry, on the other hand, argued that because software and IT services exporters were low-value professionals who should be encouraged to report their earning flows for reward, an export incentive program should be granted to them at a rate of at least 5%.
The ministry informed the task force that the permission to use 35% of export revenues for marketing purposes was not yet in effect, and that IT specialists were not the only ones who disapproved of FBR’s techniques.
It highlighted how IT export revenues may be readily stashed abroad through outlets set up in Singapore, Dubai, and other Middle Eastern locations, in contrast to manufacturing items, which can be followed due to their physical exportation. The government may encounter difficulties in this case when distributing 5G telecom spectrum licenses.