KARACHI: Pakistan’s apex trade bodies on Thursday warned that the proposed taxation measures in the federal budget 2024-25 could trigger a brain drain in the country, especially in its Information Technology sector, and stifle growth and innovation. 

Atif Iqbal Sheikh, the president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) briefed journalists regarding the IT industry’s grievances on the proposed federal budget 2024-25. 

The tax-heavy budget presented earlier this month by Finance Minister Muhammad Aurangzeb, has invited criticism from the government’s allies and opposition. Lawmakers have urged the government to do away with heavy taxes on the salaried class and items of necessary use. 

Sheikh said despite repeated assurances from the government, the IT industry’s budgetary proposals were completely ignored.

“The measures would expedite brain drain from the country due to high taxation which would stifle growth and innovation,” Sheikh told reporters at a news conference.

The FPCCI president said the proposed budget confirms the finance division’s “short-sightedness vis-à-vis IT industry,” adding that it would “derail” the sector. 

Saquib Fayyaz Magoon, senior vice president of the FPCCI, said Pakistan Software Houses Association (P@SHA) has highlighted that the taxes imposed on the salaried class could lead to a brain drain.

“This issue is compounded by the remote worker tax regime, which undermines the government’s goal of increasing revenue and expanding the tax net,” he explained. 

Magoon highlighted that the Rs79 billion amount allocated in the budget is primarily for government projects and IT parks, meaning it had neglected the broader IT industry. 

'BLEAK FUTURE'

P@SHA Chairman Muhammad Zohaib Khan agreed that the remote worker tax regime further undermines the government’s revenue goals.

“Remote workers, often paid in foreign currencies, face lower tax burdens compared to domestic employees,” Khan explained, adding that this move incentivizes companies to reclassify senior staff as remote workers, which in turn leads to inefficiencies and tax revenue loss for the government. 

Khan said to address these discrepancies, P@SHA proposes a competitive tax rate for payroll, such as a flat 5 percent for P@SHA and PSEB-registered IT companies. This would encourage formal employment and prevent brain drain, he said. 

He lamented the government’s move to increase GST (goods and services tax) on laptops and desktop computer imports. 

“The association points out anomalies in current tax laws, such as increased GST on laptop and desktop imports, depicting a bleak future for Pakistan’s IT industry,” Khan lamented. 

BUILDERS VOICE CONCERN

Meanwhile, Karachi’s prominent builders and developers also expressed concerns over the taxation measures in the budget, describing it as “destructive” for the construction sector.

“The burden of more taxes on the construction industry in budget 2024-25 will shift remittances to other countries and the local industry will be destroyed,” Asif Sumsum, chairman of the Association of Builders and Developers of Pakistan (ABAD) said in a statement. 

He warned such measures would cause millions in the country to be unemployed and lose their homes. 

Sumsum pointed out that a large part of the foreign exchange sent by Pakistanis living abroad is invested in the construction industry. He said protecting local industries and providing employment to citizens were among the government’s main responsibilities. 

“The government should provide protection to the local industries to prevent the increase in unemployment in the country,” he said.