Budget 2026 Delivers a Silent Blow to Pakistan’s IT Sector, P@SHA Warns of $700M Risk

In a statement released, P@SHA described the budget as a ‘death knell’ for the IT industry, and in a live interview on Bol News, P@SHA Chairman Sajjad Syed warned that key policy omissions could put $700 million in digital investment at risk.

The federal government’s Budget 2025-26 has introduced new tax slabs and simplified filing mechanisms aimed at improving compliance. However, stakeholders from the country’s Information Technology (IT) and IT-enabled Services (ITeS) sector have expressed concern over the lack of specific policy measures to address long-standing issues in the industry.

The Pakistan Software Houses Association (P@SHA), representing IT and ITeS companies, stated that the budget does not include two key proposals the industry had put forward: the establishment of a defined taxation framework for remote workers and the continuation of the existing tax regime for formal IT exporters.

According to P@SHA, the IT industry currently employs over 600,000 individuals and is one of Pakistan’s fastest-growing sectors. In recent years, it has played a significant role in export growth and youth employment. The association noted that despite contributing to the formal economy, IT firms are facing challenges due to policy uncertainty.

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Remote Worker Taxation Framework

One of the key proposals from the industry has been the classification of high-earning remote workers, those earning more than Rs. 2.5 million annually from fewer than three foreign clients—as a distinct tax category. P@SHA argues that this classification would help establish tax parity between local companies and remote professionals employed by foreign entities, who often fall outside the current tax net.

The association claims that such a policy would affect a small percentage of earners and could be implemented swiftly using data already available through the State Bank of Pakistan. However, the budget does not mention any provisions for this classification.

Exporter Tax Regime and Investment Risks

P@SHA also raised concerns about the absence of a continuation or expansion of the current tax regime for IT exporters. This regime had previously helped attract significant foreign investment under initiatives like the Digital Foreign Direct Investment (DFDI) framework. The association warned that without a clear and consistent tax policy, investor confidence could be affected, potentially putting future commitments at risk.

The current uncertainty, P@SHA stated, may lead to capital flight and reduced competitiveness for local firms, which could impact export targets and job creation.

Government’s Broader Tax Objectives

The Budget 2026 focuses on broadening the tax base, simplifying the filing process, and updating tax slabs to encourage compliance and formalization. While the government has not yet responded to the specific concerns raised by the IT sector, officials have stated that further consultations with stakeholders will continue in the months ahead.

The Finance Ministry has emphasized that the budget is designed to support economic stabilization and growth, and that additional sector-specific policies may be considered in subsequent policy cycles.

A Threat to Pakistan’s Only Economic Success Story

P@SHA’s warning is stark: Budget 2026, in its current form, endangers the very survival of the formal tech ecosystem. By penalizing compliance, discouraging investment, and pushing professionals and businesses toward informality, the government is undercutting one of the only sectors that has shown sustained growth and global potential.

The ambition of reaching $25 billion in IT exports will remain a pipe dream unless these issues are urgently addressed. This is no longer about offering incentives, it’s about preserving the momentum of Pakistan’s most promising economic sector.

Pakistan’s digital economy has proven its worth. The question is whether policymakers are willing to protect and nurture it or allow it to wither due to inaction. The stakes are higher than ever. The decisions made today will determine whether Pakistan remains on the map as a serious digital contender or loses the race altogether.