Is export of IT services from Islamabad zero-rated under the ICT tax, and what follows from that?

An Islamabad software house that bills a client in London or Dubai charges no ICT sales tax on that invoice. Section 3(1A) of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001 sets a zero per cent rate for exported services. That is a nil rate inside the tax, not a release from it, and the compliance rules borrowed from the Sales Tax Act still attach.

What does the law say?

Section 3(1) charges sales tax on the value of taxable services rendered or provided in the Islamabad Capital Territory at the rates in Table-1 of the Schedule. IT services and IT-enabled services are serial 11 of Table-1, at fifteen percent.

Section 3(1A), inserted by the Finance Act, 2021, reads: “Notwithstanding the provision of sub-section (1), the export of services shall be charged at the rate of zero per cent.” The words “notwithstanding” and “charged” matter. The export rate overrides the Table-1 rate, and exported services are still charged, at nil.

Section 3(3) then says that all the provisions of the Sales Tax Act, 1990, with its rules, notifications, orders and instructions, apply “mutatis mutandis” to the collection and payment of tax under the Ordinance, in so far as they relate to:

• manner, time and mode of payment;
• registration and de-registration;
• keeping of records and audit;
• enforcement and adjudication;
• penalties and prosecution; and
• all other allied and ancillary matters.

What follows for an Islamabad IT exporter?

Registration. Registration under the Ordinance runs through the Sales Tax Act. Section 14(1)(f) of that Act lists “a person who is required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax”. Section 3(2) of the ICT Ordinance levies its tax as if it were a sales tax under the Sales Tax Act. A business whose only services are exported still makes services charged under section 3, at zero per cent.

Returns. Section 26(1) of the Sales Tax Act requires every registered person to furnish a return by the due date “indicating the purchases and the supplies made during a tax period, the tax due and paid”. Exported services appear in that return as supplies charged at nil.

Records. Section 22(1) of the Sales Tax Act lists the records a registered person keeps, including “records of zero-rated and exempt supplies”, invoices, bank statements and double entry sales tax accounts. For an exporter, the invoices to foreign clients and the bank records of the payments received are the evidence that a service was exported.

Real-time reporting. The second proviso to section 3(1), added by the Finance Act, 2025, says any service provider mentioned in Table-1 and Table-2 shall integrate with the Board’s computerized system for real-time reporting, from such date and in such manner as the Board prescribes by general order. Whether and when a general order applies to IT exporters is outside this corpus.

Worked example (illustrative figures)

Maryam’s company in I-8, Islamabad builds mobile apps. In one month it invoices a client in Toronto Rs. 3,500,000 and a local Islamabad client Rs. 500,000. The amounts are invented.

1. Toronto invoice: export of services, charged under section 3(1A) at 0%. Tax: Rs. 3,500,000 x 0% = Rs. 0.
2. Islamabad invoice: IT services under Table-1 serial 11 at 15%. Tax: Rs. 500,000 x 15% = Rs. 75,000.
3. Tax declared for the month: Rs. 0 + Rs. 75,000 = Rs. 75,000.
4. Records kept under section 22: both invoices, the foreign remittance record and the purchase records for the month.

What if the exporter wants input tax back?

Zero-rating often matters because of input tax. The Sales Tax Act has its own refund provision for input tax against zero-rated supplies and exports, and section 14(1)(d) of that Act lists “an exporter who intends to obtain sales tax refund against his zero-rated supplies”. The ICT Ordinance names specific Sales Tax Act provisions that apply, and section 3(3) covers payment, registration and records. It does not expressly name the refund provision. Whether an Islamabad services exporter can obtain a refund of input tax is not clearly answered by the text in this corpus, and this page does not resolve it.

What counts as an export of services?

The Ordinance does not define “export of services”. The Ordinance says undefined words take their meaning from the Sales Tax Act. Section 2(48) of that Act defines a zero-rated supply as “a taxable supply which is charged to tax at the rate of zero per cent under section 4”, and section 4 deals with goods. Neither text sets a test for when an IT service is exported, for example where the client is foreign but the work is used in Pakistan. The corpus is silent on that point.

Common mistakes

• Treating zero-rated as outside the law. Section 3(1A) is a charge at nil. The Sales Tax Act provisions on registration, records and penalties apply through section 3(3).
• Charging 15% on a foreign invoice. Section 3(1A) overrides the Table-1 rate for exported services.
• Mixing up sales tax and income tax. Zero-rating under the ICT Ordinance says nothing about income tax on export receipts.
• Assuming provincial rules match. Services from Lahore, Karachi or Peshawar are taxed under provincial laws outside this corpus.

What to check in the official text

Read section 3 of the ICT Ordinance in the official PDF, including sub-sections (1A), (2A) and (3), and the Schedule tables. Read sections 2, 14, 22 and 26 of the Sales Tax Act, 1990, and its refund provisions. Check for any Board general order on real-time reporting and any notification on refunds for exported services, since those are not held in this corpus.