Pakistan trade body warns tax hikes could lead to talent exodus, stifling growth
KARACHI: Pakistan’s apex trade body on Thursday warned that tax measures proposed in the 2024-25 federal budget could trigger a talent exodus from the country, especially in the information technology sector, stifling growth and innovation.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Atif Iqbal Sheikh briefed reporters on the IT industry’s dissatisfaction with the proposed Federal Budget 2024-25.
The tax-heavy budget announced by Finance Minister Mohammed Aurangzeb earlier this month has drawn criticism from government allies and opposition parties, with lawmakers calling on the government to scrap heavy taxes on salaried workers and essential items.
Sheikh said despite repeated assurances from the government, the IT sector’s budget proposals have been completely ignored.
“The measure will accelerate the brain drain caused by high taxes and stifle growth and innovation,” Sheikh told reporters at a news conference.
The FPCCI president said the budget proposals confirm the finance department’s “myopicness towards the IT sector” and will “derail” the sector.
FPCCI Senior Vice President Saqib Fayyaz Magoon said the Pakistan Software Houses Association (P@SHA) has highlighted that taxes on salaried workers could lead to talent drain.
“This issue is further exacerbated by the remote worker tax regime, which undermines the government’s objectives of raising revenue and widening the tax net,” he explained.
Magoon stressed that the Rs 79 billion allocated in the budget is mainly for government projects and IT parks, ignoring the entire IT industry.
“A bleak future”
P@SHA chairman Muhammad Zohaib Khan agreed that the tax structure for remote workers would further erode the government’s revenue targets.
“Remote workers, who are often paid in foreign currency, incur a lower tax burden compared to domestic employees,” Khan explained, adding that the measure creates an incentive for companies to reclassify senior staff as remote workers, resulting in government inefficiencies and lost tax revenue.
Khan said that to address these discrepancies, P@SHA is proposing a competitive rate of payroll tax, such as a flat rate of 5 percent for IT companies registered with P@SHA and PSEB. This will encourage regular employment and prevent talent loss, he said.
He lamented the government’s plans to increase the GST (Goods and Services Tax) on imports of laptops and desktop computers.
“The association has pointed out anomalies in the current tax laws, such as the increase in GST on imports of laptops and desktops, which makes the future of Pakistan’s IT industry look bleak,” Khan lamented.
Builders express concerns
Meanwhile, prominent builders and developers in Karachi also expressed concern over the tax measures in the budget, terming them “devastating” for the construction sector.
“The burden of increased taxes imposed on the construction sector in the 2024-25 budget will drive remittances to other countries and destroy the local industry,” Asif Samsam, president of the Association of Pakistan Construction Developers (ABAD), said in a statement.
He warned that such measures would leave millions of people in the country unemployed and homeless.
Pointing out that a large part of the foreign currency remitted by overseas Pakistanis is invested in the construction sector, Samsam said it was one of the primary responsibilities of the government to protect local industries and provide employment to its people.
“The government should protect local industries to prevent a rise in unemployment in the country,” he said.
