The exemption enjoyed by Software Exporters was due to Clause 133 of the Second Schedule to the Income Tax Ordinance, 2001. The clause read as follows:
“Income from exports of computer software or IT services or IT enabled services upto the period ending on 30th day of June, 2025
Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.”
“Explanation. – For the purpose of this clause –
(a) “IT Services” include software development, software maintenance, system integration, web design, web development, web hosting, and network design, and
(b) “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing.”
It is proposed to remove this clause from the Ordinance and consequently this exemption no longer available. While it may seem bad news, a new section 65F titled Tax Credit for Certain persons is proposed to be entered in the Ordinance.
This new section provides for a 100% tax credit of any tax payable, including minimum or final tax, to any of the following:
- Person engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects.
- A startup, as defined in clause 62A of Section 2 of the Income Tax Ordinance, 2001
- An income derived by a person from export of computer software or IT services or IT enabled services up to the period ending June 30, 2025.
Provided the following conditions have been fulfilled:
i) Returns have been filed.
ii) Tax required to be collected and deducted has been collected / deducted and paid.
iii) Withholding tax statements have been filed for the previous tax year.
iv) Sales tax returns have been filed for the tax period corresponding to relevant tax year.
While this may increase compliance costs for some entities, the income earned from the export of computer software will remain exempt from income tax.
Hope this clears up some of the confusions running around, if not, please drop us a query and someone will get back to you.