ISLAMABAD (January 06 2008): The IT industry of Pakistan with low telecommunication cost, 100 percent ownership of equity and repatriation of the foreign investors profits as well as tax exemption until 2016, has the potential to increase exports from $1.4 to $11 billion by 2011, Business Recorder learnt.

As a result of the government incentive-oriented policy, Pakistan is now emerging as a major player in the global IT market. These initiatives include 100 percent ownership of equity to foreign investors with the incentive to repatriate profits and tax exemption to it companies until 2016. With the overall $2.8 billion IT industry including annual export of about $1.4 billion, Pakistan attracting investment which is likely to touch over $11 billion by 2011.

IT exports in FY 2005-2006, as reported by the State Bank of Pakistan (SBP), were $72.210 million, thus exceeding the target of $72 million. This represents an annual increase of 56 percent as compare to the exports of $46.355 million in FY 2004-2005.

There are about 700 active IT companies in Islamabad, Karachi and Lahore. Other cities are being surveyed, and it is expected that there are around 50 IT companies in other smaller cities and towns. Growth in Islamabad, over the last three years, has been around 300 per cent, Karachi around 180 percent and in Lahore it is around 150 per cent.

The global community has placed Pakistan in the 'First Category' countries in 2007. Previously, in 2006 Pakistan was placed in the 'Third Category' countries. Moreover, Pakistan's IT revenue had grown to 59 percent in 2006. Similarly, new IT parks in major cities are being set up across the country while 750,000 square feet of space has already been leased out to IT companies for new parks.

There are many Pakistani IT companies that have developed world class software's in areas such as car leasing, enterprise application integration, mortgage lien processing, stock market order management, mobile convergence, data and web content management for some of the top most corporations of the world.


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Why repatriation of cash and tax exemption? How does Pakistan earn off from these deals if we dont tax and have the companies keep the money in the country?

Tax the income of the employees and tax the associated industries. But there is nothing wrong with tax incentives, or no tax. Remember we are playing catch up on the global scale.

You get tax earned from employee income, and their expenditures. Not to mention the expenditures of the company itself (for example if it buys computers).

Futhermore it brings compaines to Pakistan. by 2016 they may be settled, then you can tax them. One a company is settled it will find it expensive to uproot and just disappear.

Plus it will provide more jobs in the country, hence less poverty, hence more spending power, hence more consumer products needed, hence more companies will come to the country (of all sorts), hence more jobs, hence a continuing cycle, not to forget that due to less poverty education will be affordable to more people leading to a higher literacy rate (more people going to school), which will help fight extremism, which will in turn help stabilize the country.

Remember we are playing catch up on the global scale.

Plus it will provide more jobs in the country, hence less poverty, hence more spending power, hence more consumer products needed, hence more companies will come to the country (of all sorts), hence more jobs, hence a continuing cycle, not to forget that due to less poverty education will be affordable to more people leading to a higher literacy rate (more people going to school), which will help fight extremism, which will in turn help stabilize the country.

Above all this increase in our export figures ..

It is very important that the govt. is able to get increase in such type of services, as IT services is sort of a technological J.V. with other countries.

That increase would be hollow. I really dont like the idea of tax free thing for the firm. Unless there is bakdoor stop which would mean certain amount of money would be reinvested in pakistan and not pulled out of pakistan.

Bro, $11billion looks okay on paper but that money will go out of the nation as the firms wont be pakistan in most cases. So its coming in and than going out unless we have a deal where by we dont chrage tax but say 60% is reinvested bak in Pakistan which would be a great step.

So 50 year tax free in Gawader and now here tax free offers are no good for us. We need each and every penny not just for people but government revenues so they can provide services and development to the people. Unless we want to establish private sector for everything.

Well, out in the open and still no one wants to question the numbers. I do not know if this is seen as being un-patriotic or what.


IT exports in FY 2005-2006, as reported by the State Bank of Pakistan (SBP), were $72.210 million, thus exceeding the target of $72 million. This represents an annual increase of 56 percent as compare to the exports of $46.355 million in FY 2004-2005.


It says the exports according to the state bank of Pakistan are 72.2 Million and then in the next sentense quote a figure of 1.4B dollars for It exports. Seems like there is a lack of coherency here.

Lenghy Tax breaks generally help, but things have to settle down quite a bit in the political arena and some "no news" time has to pass before companies can begin to invest in. Seems like for about a year since last March, almost any news that comes out of Pakistan seems to be negative which does not help.

You don't understand, you can still get tax due to the firm, just not directly from it (until the tax free period ends).

What percentage of income is than paid as wages to employees. maybe 30% of the overall income. Thus we are missing that 70% gap and that is the major concern im talking abt. I said if there is a backdoor where by they cant remove that 70% out of the country, but rhater reinvest in country than this break is worth while, it wise its like abuse me and leave. They(companies) would get all the benifits but Pakistan would gain very little from it. Unless there is some kind of stop on the income going out...

Its not all good as it seem, otherwise many countries would have done the same techniques to get mass investment and India could have done the very same to stop us from getting investment.

Its just like property investment in Pakistan, many foreign investor come and buy than after year or so sell it more than 100% and leave all with profit and no capital gains etc. We are losing money and its no joke nor it is a free world. Our taxation policy is now touching joke level.

You hit the nail on the head... Taxation is the backbone of any economy, as it provides the necessary funds for the developmental growth of a country.

On another note, the exemptions to taxes for the privileged, their duplication and triplication for the common man, the method of their collection and making refunds, utilization of specific-purpose taxes over the years has always been farcical. Pakistan has hardly ever had a proper and transparent taxation policy in place that would ensure revenue, redistribution, repricing, and representation. Let alone other fundamentals of taxation... How do we ever expect roads, schools, hospitals etc. to be built on mass scale when such a vital source of monetary income is in disarray? It has to be said though that Musharraf has taken several steps to improve the taxation system, but nowhere near what's required.

I'd propose a Direct Corporate Tax/Fund/Sponsorship. Tell the big companies to fund a certain number of commoner medical patients so they could receive treatment at Pakistan's best; or fund a promising student so he/she could complete his/her undergrad at a top Pakistani university. This way money reaches the people, corporations & rich help society - no one can claim about government misuse of tax.

I'd propose a Direct Corporate Tax/Fund/Sponsorship. Tell the big companies to fund a certain number of commoner medical patients so they could receive treatment at Pakistan's best; or fund a promising student so he/she could complete his/her undergrad at a top Pakistani university. This way money reaches the people, corporations & rich help society - no one can claim about government misuse of tax.

Mark .. you do realize that other than tax on profits, all other employee taxes, sales taxes, etc. will still be put on the sales of the company.

The tax break means tax on profits. Also of course a company which is providing IT service to foreign countries will be obliged to provide skill upgradation to it's Pakistani employee.

Just of your information such tax breaks are existing not for a period but unlimited period in Dubai media city. Now why would a foreign company come in Pakistan face the music of terrorist .. no major night life and still get incorporated in Pakistan !

The point in allowing tax incentives is to get FDI into the country. This has the added benefit of creating jobs. This is a good policy of the govt. (following the Dubai lead). Unfortunately, it wont work because:

1. Law & Order is getting from bad to worse, meaning foreigners will not like to invest in Pakistan.
2. There is a lack of skilled labour in the country. Apart from dbase developers, Pakistan doesnt have any skills in the IT field as yet.
3. There is a lack of a diverse/competitive vending sector. IT doesnt only mean software. If you wish to develop a simple product like a mouse, you need to have good (and competitive) vendors. For example, you need competitively priced PCB manufacturers and chip component suppliers, which we dont have.
4. High cost of doing business in Pakistan: At the end of the day, it costs more to make IT products in Pakistan than in other countries. This is very unfortunate.

Dubai has $$$$$$ so they can afford such move, however we need each and every penny so we can invest it for betterment of the people. This tax break is joke if it is not checked by stoping the companys taking money out of Pakistan. Like i said its very similar to Proptery investment in Pakistan where there is no Captial gains tax hence its freebe for them.

However, have u ever wondered y UAE companies are spending billions in Pakistan property market. Well they know their investment profit would double if not tripple while the investors they would be selling to wont be paying any capital gains tax and they are becoming rich on stupidity of our governments. Yeh it would creat jobs and othe things in Pakistan, but have u everwondered how much more money we would be getting if there is proper taxes in place and we are not giving each and every company years of tax break. Its pathetic, how are we gonna provide services if we dont have money.

We are facing energy crisis and how else are we gonna fund those project if we dont collect taxes, and in property market we are losing $billions per annum. Everything in the economy has to be managed and each and everything needs to be given carful considerations.

Its very simple we collect taxes and we provide services and living standards of people go up. These companies might be here for small period of time so they can enjoy such concessions but as soon as that is over, the people would be unemployed again.

I agree with you that a proper taxation system needs to exist in the country and THE GOVERNMENT NEEDS TO STOP WASTING IT AND POCKETING IT (i.e. the tax payers must have confidence in the treasury). Not having a capital gains tax is bad; not only is the govt not getting its share in the profit, but the property prices have reached sky high, thus becoming unaffordable to the common man.

Having said that, you have a HUGE current account deficit and high unemployment/poverty rates. How do you tackle these issues? One way is to sell your assets to foreigners (privatization) but a better way is to get foreigners to invest in your country. If foreigners invest in property or shares, current account deficiit reduces but if they invest in industry (such as the IT industry), then you create jobs as well. Later on, when the industry is well settled, you start taxing them.

Like I said above, the tax incentives aught to entice foriegn investors to invest in Pakistan. Unfotunately, it will fail because of the reasons outlined above.

Put it in simple facts the way investment is coming into pakistan is not gonna help us. Yeh for short term is great but for long term its not, as the money that is invested would be outflowing and leaving us with bigger problem. Just like egypt, which gets billions in torusim however, coz the places are being run by foreign companies thus egypt is losing well over 60% of the money as its going outside the nation. Thats where my concern is, we are not taxing em and i dont think there is a clause where by these firms cant sent their profit bak to home country of theirs. So we are getting hit from two sides and thats i a major concern. For politcial point scoring these offers are great but in long run we are gonna face deficit when the income starts to outflow from the nation.

Now property ,,shares etc investnement is short run investnment and due to lack of capital gains we are as u agree losing billions in taxations. These investors come here double and tripple their investment for nothing and what does pakistan get out of it? absolutly nothing. We reduce our Deficit when the money comes in but it sky rockets when the money goes out as people pull theri investment after heafty money making.

Again industry wise, unless we get some prominant industry we wont have much success, most of the companies that are coming here are to exploit the cheap labour condition and as soon as they find some other place they would go out the nation in no time.

Like I said b4 if we look at the investment its mostly PROPERY BASED, like UAE is spending well over $50 billion yeh it owuld help the economy but it would leave gap as well.

Why would the foreign company leave Pakistan in the long run? If its making money, why should it leave? You mentioned Egypt, has any foriegn tourism company left Egypt? Has any foreign company left Dubai? It doesnt make business sense for any company to pack up and leave if its profitable.

As for sending its profits outside the country, whats wrong with that? If they can bring money INTO Pakistan, why cant they take it OUT of Pakistan? Furthermore, if they are making good money IN Pakistan, it would make business sense for them to invest more in the country. Thats good for job creation.

Eventually, they will be taxed like all other sectors. By that time, these companies will be well established and can afford to pay taxes, which will still be lower than in other countries. So in the long run such policies are good for the country.

Regarding Property, i agree with you that now the time has come to impose capital gains tax on it. The govt has already imposed a tax on shares which is a good step.

If money starts to outflow like say the profits than, it would lead to increase in account deficit and its somthing we cant afford and are not willing to afford. So for company it might be great but for a Nationa state its not good as the more profit that stays back and is reinvest the better it is for the country it self.

When company come into country they have a preplanned route and they follow it, they make profit here and indirectly fund the better service they provide in their home country at a cheaper costs but as i said the host country suffers due to low wages which attracts the compnay and than the money flowing outside the nation. Since most companies are private than shareholder expect some dividend and profit is what dividend comes from, hence companies would constantly remove the profit to pay that divident or to fund expansion of services in their home country.

Now, the companies that are coming here are mostly IT base and it does not require much of investnment in plants etc, thus it becomes easier for them to operate and easier for them to leave when other places give better opportunit. Look at egypt despite all the money from tourism its getting her GDP isnt that great nor is her trade deficit thats becoz of great amount of money flowing out as well as firms importing stuff for their needs for the toruism industry.....

UAE is big shot nation and i doubt any firm would leave it and its completly different story...but as i said if its real investment interms of plants etc than its great other wise propery to IT type investment isnt good. We need local firms for IT just like India so that our nation develops.

It seems to me that you want foreigners to bring money into Pakistan and never take it out. Why would any foreigner do that? Would you want to invest in a foreign country and not be able to take it out? Do you think its wise to lure foreigners to invest in your country? If so, then how would you get foreigners to invest in your country? No one will invest in Pakistan unless they are given an incentive.

It is in the national interest to give incentives so that foreign capital moves into our country instead of it going to other countries. Dont worry about profits being moved out of Pakistan...there will still be a NET POSITIVE FLOW of funds into Pakistan because of these incentives. If this was not so, no country would ever offer incentives to foreigners.

It is a wrong impression that IT is not a capital intensive industry. Just look at Microsoft or EA Sports...these are billion dollar companies. Furthermore, IT doesnt mean software only...hardware manufacturing requires a lot of investment too. Either way, it is not easy to wind up and leave. Besides, if you are making money, why would you leave? Do you forsee Microsoft leaving India, even though they are taxed there?

You talk of Egypt...its Per Capita GDP grew from $1354 in 1981 to $4534 in 2006(Source: http://en.wikipedia.org/wiki/Economy_of_Egypt ) ...thats a 13% increase in per capita per year for the past 25 years! I dont think any Egyptian should be unhappy with this enormous increase in per capita GDP.

My brother dont put your brain in too much stress over tax issue, IT industry is export oriented industry, money comes from outside, pays wages and other expenses and rest leaves, who's gain is it?. Beside, added bonus we develop our human resources...there is no loss in this deal

you also forget the many benefits we get from foreign investment, jobs, training imparted on our local people, business know-how, taxes paid in pakistan (other than income tax), purchasing done in pakistan which further spurs growth. The situation is a win-win situation as both parties gain, don't portray it as a lose situation for Pakistan. Without these foreign investors certain sectors of the economy would not be able to grow as much as they have (eg IT).

the reason why countries liek China, Brazil, Russia are all doing well is because they have had many foreign investors who came in and spurred on the economy.

look at the mobile phone industry in Pakistan, because of competition created by FDI, call rates have fallen to the consumer, simultaenously PTCL has had its domination of telephony challenged. (one of my aunts had to wait 7 years to have a phone connected to her house because she did not provide safarish)
Pakistan now has a 4th generation mobile phone network, thanks to FDI (by comparison India's is only 3rd generation).

PTCL has been lazy and is being kicked into action by the realisation epiople don't need landlines if they have mobiles. FDI has many positive benefits

the reason why every country wants FDI is the benefits outweigh the costs when done properly. Look at the $70 billion odd FDI in China. This is why the chinese are a monster economy, in addition to chinese business, FDI augments the economy

The investment ur talking abt is different type of investment i neva said such investment was wrong. But my issue is with propety investment which includes dealing on KSE and other exchanges. This is investnment which only benifits the investor and no revenue fr government thus for this we need Captial Gains Tax.

On similar note, investors tax free concession and than we dont have a catch where they cant take big amount out of the nation than again there is no benifit. The IT industry unless local has very minimum impact on the well being of people. Most IT investment we are getting is abt software development etc. Thus there is no need to setting up big plants etc thus its very small scale investment with greater amount of income can be earned. However, since there is lack of purchases on behalf of the firm other than few odd computers, than we cant get income from their prodcut by taxing em and further we have given them tax free time thus they dont pay tax on the income. When we start to tax them they would leave for another nation since there istn much cpaital investment to make them stop.

So there is no benifit unless we compell the firms to keep the income they earn in Pakistan, well not all of it but small amount of it. But on other hand we should encourage Pakistani own firms in IT sector especially softaware as income as well as other reources would stay in Pakistan and there is greater national benifit out of it.

Once again, im not talking abt big capital invesment.. like telecommunication etc.