Software houses and IT companies

Tax on IT exports and local IT services, sales tax on services and company obligations. Each answer below explains one point in plain words, works through an example, and links the exact section of the law it relies on.

• Has the 0.25% tax on IT export proceeds been extended after Budget 2026-27, and until when?The Finance Act 2026 replaced 2026 with 2029 in Division IVA, so PSEB-registered IT exporters keep the 0.25% rate on proceeds up to tax year 2029 (June 2029).
• Is export of IT services from Islamabad zero-rated under the ICT tax, and what follows from that?Section 3(1A) of the ICT Tax on Services Ordinance charges exported services at zero per cent. Sales Tax Act rules on registration, returns and records apply.
• Why did the bank deduct 1% instead of 0.25% from our IT export remittance, and can we get it back?The 0.25% section 154A rate needs PSEB registration and certification. Otherwise the bank deducts 1%. Refunds of final tax are limited by sections 169 and 170.
• Can FBR audit a software house under the IT export final tax regime, and what records must it keep?Section 177 audit powers have no exclusion for final tax income. Section 174 and rule 29 set the records a software house keeps for six years after a tax year.
• Can FBR audit a software house under the IT export regime, and what records must it keep?Section 177 audit powers have no carve-out for final tax export income. Section 174 and rule 29 set the records a software house keeps for six years.
• What conditions must a software house meet to keep IT export income under the final tax regime, and does it still have to file returns?Section 154A(2) keeps IT export tax final only if the return and withholding statements are filed and no foreign tax credit is claimed. Every company must file.
• Does minimum tax on turnover under section 113 apply to a software house?Yes for a resident company. Section 113 compares tax payable with 1.25% of turnover, but receipts and tax that are final under section 169 are left out.
• Why is withholding on our IT services doubled when our company is not on the Active Taxpayers List?Rule 1 of the Tenth Schedule raises section 153 withholding by 100% for persons not on the Active Taxpayers List, so 4% on IT services becomes 8% in 2027.
• How are employee stock options taxed for employees of a Pakistani tech company?Section 14 taxes no option at grant. Issued shares are salary at market value less the price paid, restricted shares wait for release, payroll carries tax.
• Can a software house get an exemption or lower rate certificate so local clients do not deduct section 153 tax?Section 159 allows exemption or lower rate certificates for exempt, lower-rate or fully credited income. Why section 153(4) rarely helps on IT services.
• How are employee stock options taxed for employees of Pakistani tech companies, and must the company withhold tax?Section 14 does not tax a share option at grant. Shares issued are salary at market value less what the employee paid, and enter the section 149 estimate.
• Is export of IT services from Islamabad zero-rated for ICT sales tax, and can an IT exporter reclaim input tax?Section 3(1A) of the ICT Tax on Services Ordinance zero-rates exported services. Whether input tax on those exports is refundable is not stated expressly.
• Must a software house in Islamabad charge ICT sales tax on IT services it provides to local clients?Section 3 of the ICT (Tax on Services) Ordinance taxes services rendered in Islamabad, and Table-1 serial 11 lists IT and IT-enabled services at 15%.
• Must an Islamabad software house charge ICT sales tax on IT services to local clients, and is the rate 15% or 5%?IT services in Islamabad are taxed at 15% under Table-1 of the ICT Tax on Services Ordinance. Table-2 sets 5% for software consultants, without input tax.
• Can an Islamabad software house charge the reduced 5% ICT tax instead of 15%, and what does it give up?Table-2 of the ICT Tax on Services Ordinance sets 5% for software consultants with no input tax adjustment or refund. Table-1 sets 15% for IT services.
• How much income tax does a software house pay on IT export revenue in Pakistan?Banks deduct tax on IT export proceeds under section 154A: 0.25% for PSEB-registered exporters up to tax year 2029, 1% otherwise. What counts and which year.
• Is the tax deducted on our IT export remittances a final tax, and what conditions must the company meet to keep it final?Section 154A(2) makes tax on IT export proceeds final only if the return and withholding statements are filed. What section 169 then means for a software house.
• Is the tax the bank deducts on our IT export remittance a final tax, or do we still pay corporate tax on the profit?Section 154A tax on IT export proceeds is final once its conditions are met, so the income leaves the corporate tax computation. A company may opt out yearly.
• Is the 0.25% tax on IT exports only for PSEB-registered companies, and what is the rate if we are not registered or our registration lapses?The 0.25% rate on IT export proceeds applies only to PSEB-registered exporters. Other section 154A cases pay 1%. The law does not address a registration lapse.
• What happens to our IT export tax rate if the company is not PSEB-registered or its registration lapses, for example when the bank deducts 1% instead of 0.25%?Section 154A ties the 0.25% IT export rate to PSEB registration. Without it, Division IVA applies 1% of proceeds. How that affects final tax and refund claims.
• Can a software house opt out of the final tax regime on IT exports to claim losses, depreciation and expenses?Section 154A(3) lets an IT exporter opt out of final tax each year when filing its return. What it gains in expenses, depreciation and losses, and what changes.
• Do PSEB-certified tech startups get a tax exemption, for how many years, and who counts as a startup?Section 65F gives a PSEB-certified startup a 100% tax credit for its certification year and the next two tax years, if it meets the clause (62A) startup test.
• Do PSEB-certified tech startups get income tax relief, and what counts as a startup?Section 65F gives a PSEB-certified startup a 100% tax credit for its certification year and the next two tax years. How clause (62A) defines a startup.
• What sales tax and advance income tax apply when a software house imports laptops and computers?Imported laptops and PCs carry 10% sales tax under the Eighth Schedule, local laptops are exempt, and section 148 adds advance income tax at import.
• Does minimum tax on turnover under section 113 apply to a software house?Section 113 applies to every resident company, software houses included, at 1.25% of turnover, but export receipts taxed as final are left out of that turnover.
• Can a software house get an exemption or reduced-rate certificate so clients do not deduct section 153 tax?Section 159 lets the Commissioner issue an exemption or lower rate certificate, deemed issued via Iris after 15 days for a company. Section 153(4) is narrower.
• Is the tax deducted from our local IT service invoices adjustable, or is it minimum tax for a company?Tax deducted under section 153 on services is minimum tax, companies included. It counts as a credit under section 168 but sets a floor on tax for that income.
• How much tax will a local client withhold under section 153 when it pays our software house for IT services?A prescribed client withholds 4% of the gross amount payable for IT and IT enabled services in tax year 2027, unless its payments total under Rs. 30,000.
• How much tax will a local client withhold under section 153 when it pays our software house for IT services?Section 153 withholding on IT and IT-enabled services is 4% of the gross amount in tax year 2027, against 7% for other listed services, above Rs. 30,000 a year.
• Is the section 65F 100% tax credit and the 80% remittance condition still available to IT exporters?No. The IT export credit in section 65F and the old clause (133) exemption, both with an 80% remittance rule, were omitted. Section 154A now taxes IT exports.
• Is the section 65F 100% tax credit and its 80% remittance condition still available to IT exporters?The IT export clause of section 65F, with its 80% remittance proviso, was omitted by the Finance Act 2022. What 65F covers now and how IT exports are taxed.
• What happens if a software house fails to deduct or deposit withholding tax on salaries and contractor payments?A software house that misses withholding tax becomes personally liable for it under section 161, owes default surcharge and can lose final tax on IT exports.
• What happens if a software house fails to deduct or deposit withholding tax on salaries and contractor payments?Missed withholding makes a software house personally liable under section 161, adds default surcharge, blocks the expense and can cost IT export final tax.
• Why is the withholding rate on our services doubled when the company is not on the Active Taxpayers List?Section 100BA and rule 1 of the Tenth Schedule double withholding for anyone off the Active Taxpayers List, so 4% on IT services becomes 8% in tax year 2027.
• What must a software house do as an employer to deduct and deposit tax on staff salaries?An IT employer deducts tax from each salary at the average rate under section 149, pays it to the Commissioner, files section 165 statements, bears shortfalls.
• What are a software house's obligations to deduct tax from staff salaries under section 149?Section 149 requires an IT employer to deduct tax from each salary at the employee's average rate, file quarterly and annual statements, and bear any shortfall.
• How much income tax does a software house pay on IT export revenue, and until when does the 0.25% rate run?Section 154A and Division IVA set the tax a bank deducts on IT export proceeds: 0.25% for PSEB-registered exporters up to tax year 2029, 1% in any other case.
• How is a software house taxed when it earns both export and local income, and how are expenses split between them?Local IT income is business income taxed at company rates. Export proceeds carry a final tax, and shared costs are split so only the local share is deducted.
• How does a software house split expenses, depreciation and losses between export income under final tax and local income?Section 169 allows no deductions or loss set-off against final-tax export income. Section 67 and rule 13 split shared costs like salaries by gross receipts.
• Does a certified startup still pay minimum tax, and do clients still withhold tax from its payments?The section 65F credit covers minimum and final taxes for three years, and clause (43F) switches off section 153 withholding on payments to a startup.
• Does a certified startup still pay minimum tax, and do clients still withhold tax from its payments?Section 65F's startup credit covers minimum and final taxes, and clause (43F) of the Second Schedule switches off section 153 for a startup as recipient.
• Does super tax under section 4C apply to a software house whose income is mostly IT exports?Section 4C does not apply where export proceeds exceed 80% of total turnover. Otherwise final-tax export income counts as imputable income toward the threshold.
• Does super tax under section 4C apply to an IT company whose income is mostly exports?Not if export proceeds exceed 80% of total turnover: clause (104B) switches off section 4C. Otherwise final-tax export income counts as imputable income.
• How is tax deducted when an IT company pays salaries in dollars or linked to the dollar rate?Section 71 converts a dollar salary to rupees at the State Bank rate on the date taken into account. Section 149 withholding runs on that rupee salary.
• Must a software house deduct tax when it pays local freelance or contract developers?A software house company deducts section 153 tax when paying resident freelancers: 15% for developers working independently, above Rs. 30,000 a year.
• Is tax deducted when a software house pays AWS, Google Cloud or foreign SaaS subscriptions from Pakistan?Fees for offshore digital services paid by a Pakistani software house are taxed at 15% under section 6, and section 152(1C) makes the remitting bank deduct it.
• How is income from local Pakistani clients taxed for a software house that also exports, and is the tax clients deduct adjustable?Local IT income is business income taxed at the Division II company rate. Tax local clients deduct under section 153(1)(b) is minimum tax, credited but a floor.
• Must a software house deduct tax when paying AWS, foreign SaaS vendors or a foreign subcontractor?Cloud and SaaS fees are offshore digital services taxed at 15% under section 6. A foreign subcontractor's fee takes 15% or 20% under section 152.
• What withholding applies when a Pakistani software house pays a foreign subcontractor or its foreign parent company?Section 152 withholding on payments to non-residents: 15% on technical fees and royalty, 20% on other amounts, 4% on IT services from a Pakistani branch.
• Must a software house deduct tax when it pays local freelancers or contract developers?A company paying a resident freelancer for services deducts tax under section 153. Developers working independently face 15%, doubled if not on the ATL.