The concerns of the Ministry of Information Technology over the withdrawal of tax exemptions for the IT industry in the upcoming budget are not misplaced. The decision of the Federal Board of Revenue (FBR) to bring changes in the government policy regarding IT and IT-enabled services can prove detrimental to the growth of the sector.

Even though the sector under discussion has shown phenomenal growth in recent years, it is still in its developmental stages when compared to the global IT industry. While the government should have provided it protection and offered it as much support as possible, the FBR’s removal of tax breaks can stunt IT/ITES growth.

The policy change can also potentially result in the flight of capital and brain drain. Many young Pakistanis professionals are already looking to find permanent residencies in countries like Canada and Australia. With the removal of exemptions to the sector, the government might as well reverse all the gains that it has made so far.

It is worth mentioning that the industry had shown astounding growth of 40 percent in FY 2019-2020. Experts believe that the export figure could reach $2 billion by the end of this year. This remarkable expansion would not have been possible had the government not offered support through various initiatives and incentives, including the existing tax exemptions.

Ideally, the government must formulate a long-term plan—clearly chalked out with milestones for every year—to generate revenues from this industry beyond taxation. The government can partner with private organisations to make incubators and revenue generation streams. The government can potentially assign this task to the Special Technology Zone Authority, already established for promoting IT and emerging technologies in the country. Relying little on taxation and adopting the developmental state model concerning the tech industry would help the state in the long run, both in terms of generating revenue and spurring high levels of growth in the sector.