The below mentioned knowledge are as at 05-09-2022 (updated after the Finance Act 2022) and are subject to change as per changes made by the government.

Legal Framework and Taxation of IT Services in Pakistan

The taxation law for the IT Services or IT Enabled Services are now very well defined under the Income Tax Ordinance, 2001 in respect of taxation treatment and tax credits.

Tax Credit [65F (1) (c) of ITO, 2001]

The above tax credit has been withdrawn in the Finance Act 2022 for the case of “Income from Exports of computer software or IT Services or IT Enabled Services as defined in clause (30AD) and (30AE) of section 2 of the ITO, 2001.

Taxation [154A (1) of ITO, 2001]

Persons who offer IT Services or IT Enabled Services have an option to be charged either in the final taxation or in the normal taxation subject to the conditions met as defined under.

Conditions [Section 154A (2) of ITO, 2001]

Provided that the following conditions should be met and made compliance for

• Return has been filed
• Withholding statements for the relevant tax years have been filed (In respect of those provisions of the Ordinance, where the person is a withholding agent)
•  Sales tax return under the Federal or Provincial Laws has been filed (If required under the law)

They shall be charged at reduced rate of 0.25% (Up to tax year 2022, it was 1%) of the proceeds subject that the service exporter must be registered with and duly certified by the Pakistan Software Export Board (PSEB)

This will be treated as final tax and will fall in final tax regime (FTR). The above tax liability shall be withheld by every authorized dealer in foreign exchange or banks. It is very well clarified by the law that if a person does not fulfil the above conditions, they shall NOT be liable to opt for the final taxation and instead will be treated in Normal Tax Regime.

For the purpose of above, IT Services and IT Enabled Services are defined as under.

IT Services defined under section 2(30AD) are (but not Limited to)

• Software development
• Software maintenance
• System integration
• Web design
• Web development
• Web hosting

IT Enabled Services defined under section 2(30AE) are (but not Limited to)

• Inbound or outbound call centers
• Medical transcription
• Remote monitoring
• Graphics design
• Accounting services
• HR Services
• Telemedicine centers
• Data entry operations’
• Cloud computing services
• Data storage services
• Locally produced television programs
• Insurance claims processing

Syed Muhammad Suleman Jawed

Tax Executive

Jawed Aijaz & Company (JAJ)

Note – These findings are purely understanding and perception by Team JAJ and cannot be presented as evidence before any court/authority. JAJ accepts no responsibility of any loss as a result of reliance on this information. If any of the reader has any better understanding on the above topic or can advise any correction in any of the above understanding, their advice and correction are most welcomed through the mentioned email address