Pakistan’s Information Technology (IT) sector has been a beacon of hope for the country’s economy, demonstrating remarkable growth even amidst challenging circumstances. However, the recently announced national budget has raised significant concerns within the IT community, particularly among freelancers who constitute a substantial part of this sector. This article delves into how the new budget impacts Pakistani freelancers, examining their economic contributions and the broader economic context of Pakistan.
The State of Pakistan’s IT Sector
Record Growth and Economic Contribution
In April 2023, Pakistan’s IT sector achieved a milestone with inflows reaching an all-time high of $310 million. According to data from the State Bank of Pakistan, the sector recorded a 62% year-on-year growth. Over the first ten months of the fiscal year 2023-24 (10MFY24), IT exports amounted to $2.59 billion, marking a 21% increase from the $2.14 billion recorded in the same period of the previous fiscal year.
Export Projections and Government Policies
IT exports are projected to surpass $3.5 billion, following the caretaker government’s decision to increase the retention limit in Exporters’ Specialized Foreign Currency Accounts from 35% to 50%. This policy aims to boost foreign currency reserves and incentivize IT exports.
Economic Impact of Freelancers
Freelancers play a crucial role in Pakistan’s IT sector, contributing significantly to the economy. According to the Pakistan Software Houses Association (P@SHA), freelancers generated approximately $500 million in exports in 2022. They not only provide valuable foreign exchange but also create employment opportunities and foster innovation.
Concerns Raised by the IT Community
Overlooked Proposals and Increased Tax Burden
Despite the sector’s impressive performance, IT industry leaders, including P@SHA, have expressed profound apprehensions regarding the new budget. Ali Ihsan, senior vice chairman of P@SHA, criticized the budget, stating that the government had ignored the industry’s proposals and imposed measures detrimental to its growth.
One of the primary concerns is the increased tax burden on the salaried class and IT companies. The budget introduced higher income taxes and enhanced the General Sales Tax (GST) on hardware from 5% to 10%. These measures, according to industry experts, could exacerbate the already significant brain drain of skilled workers from Pakistan’s IT sector.
Impact on Freelancers
For freelancers, the budget’s implications are particularly severe. The increased taxes on imports of equipment and the failure to address the challenges posed by the remote worker tax regime add to their operational costs. Freelancers, who often rely on importing high-quality equipment for their work, now face higher expenses, reducing their competitiveness in the global market.
Lack of Support for Skill Development
Muhammad Zohaib Khan, chairman of P@SHA, highlighted the government’s neglect of the need for a skilled workforce. Despite the IT sector’s double-digit growth, the budget did not include significant provisions for skill development or incentives to retain talent within the country. This oversight is likely to further deplete the already scarce pool of highly skilled professionals in Pakistan.
The Broader Economic Context
Pakistan’s Economic Challenges
Pakistan’s economy is currently grappling with multiple challenges, including high inflation, a substantial fiscal deficit, and dwindling foreign reserves. The IT sector has been a vital source of foreign exchange and employment, helping to mitigate some of these issues. However, the new budget’s policies threaten to undermine this critical sector.
The Role of Freelancers in Economic Stability
Freelancers have been instrumental in providing economic stability through their contributions to IT exports. They represent a flexible and dynamic workforce capable of quickly adapting to global market demands. By earning in foreign currencies and spending locally, freelancers help alleviate some of the pressure on Pakistan’s foreign exchange reserves.
Significant concerns
The new budget has raised significant concerns within Pakistan’s IT community, particularly among freelancers who play a vital role in the sector’s growth and the national economy. Increased taxes and the lack of support for skill development threaten to reverse the progress made in recent years. To ensure that Pakistan’s IT sector continues its upward trajectory, the government must consider amending the finance bill to address these issues and support the industry’s sustained growth. Without such measures, the economic contributions of freelancers and the broader IT sector could be severely hampered, impacting the overall economic stability of Pakistan.
