How much income tax does a software house pay on IT export revenue in Pakistan?

A software house that exports its work does not normally pay tax on that revenue by writing a cheque to FBR. The Income Tax Ordinance, 2001 makes the bank collect it. When foreign proceeds are converted, the bank deducts a percentage of the gross proceeds under section 154A, and the rate depends on whether the company is registered with the Pakistan Software Export Board (PSEB).

What does the law say?

Section 154A(1) requires every authorised dealer in foreign exchange, at the time it realises foreign exchange proceeds, to “deduct tax from the proceeds at the rates specified in Division IVA of Part III of the First Schedule”. The proceeds covered include, in clause (a), “exports of computer software or IT services or IT enabled services” where the exporter is registered with and duly certified by PSEB, and in clause (b), services or technical services rendered outside Pakistan or exported from Pakistan.

Division IVA of Part III of the First Schedule, as amended up to 30 June 2026, sets two rates:

S. No.	Type of receipt	Rate of tax
1	Export proceeds of computer software or IT services or IT enabled services by persons registered with Pakistan Software Export Board	0.25% of proceeds for tax years 2024 up to tax year 2029
2	Any other case	1% of proceeds

What counts as IT services and IT-enabled services?

Section 2 defines both terms, and both definitions are open lists (“include but not limited to”).

• IT services, clause (30AD): software development, software maintenance, system integration, web design, web development, web hosting and network design.
• IT-enabled services, clause (30AE): inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centres, data entry operations, cloud computing services, data storage services, locally produced television programs and insurance claims processing.

A software house building apps for a client in Dubai, a web agency hosting sites for UK clients, or a BPO firm in Karachi running an outbound call centre for a US company all fall within these words.

Which tax year does the rate apply to?

Section 74(1) makes the normal tax year the twelve months ending on 30 June, and says it shall be denoted by the calendar year in which that 30 June falls. Proceeds realised between 1 July 2026 and 30 June 2027 therefore fall in tax year 2027. Row 1 of Division IVA covers tax years 2024 up to 2029, so the 0.25% rate is available for tax year 2027 to a PSEB-registered exporter.

How does it work in practice?

The bank deducts the tax when the foreign payment is realised, so the company receives the net amount. Section 154A(2) then makes that deduction a final tax on the export income, provided the conditions listed there are met: the return has been filed, withholding statements have been filed if required, sales tax returns have been filed if required (a condition that does not apply to a PSEB-registered IT exporter under clause (a)), and no foreign tax credit is claimed.

Where the tax is final, section 169(2)(a) says the income is not chargeable to tax under any head of income in computing taxable income. The export revenue sits outside the normal corporate computation. A company can also opt out of final taxation each year under section 154A(3). The consequences of each route are set out on the related pages.

Worked example (illustrative figures)

Nexa Code (Pvt) Ltd, a software house in Lahore, realises foreign proceeds equal to Rs. 50,000,000 from US clients during tax year 2027 for custom software development.

If it is registered with PSEB (row 1):

1. Rate: 0.25% of proceeds.
2. Tax deducted by the bank: Rs. 50,000,000 x 0.25% = Rs. 125,000.
3. Amount credited to the company: Rs. 50,000,000 - Rs. 125,000 = Rs. 49,875,000.

If it is not registered with PSEB (row 2, any other case):

1. Rate: 1% of proceeds.
2. Tax deducted by the bank: Rs. 50,000,000 x 1% = Rs. 500,000.
3. Amount credited to the company: Rs. 50,000,000 - Rs. 500,000 = Rs. 49,500,000.

The difference between the two rows on this revenue is Rs. 500,000 - Rs. 125,000 = Rs. 375,000.

What if the company also earns local revenue?

Section 154A deals only with foreign exchange proceeds realised through an authorised dealer. Revenue from Pakistani clients is outside Division IVA. It is dealt with under other provisions, including withholding by the paying client, which this page does not cover.

Common mistakes

• Treating 0.25% as available to every IT company. Row 1 of Division IVA refers to persons registered with PSEB, and section 154A(1)(a) requires the exporter to be registered with and duly certified by PSEB.
• Applying the rate to profit. Division IVA expresses both rates as a percentage “of proceeds”, meaning the gross foreign exchange realised, not profit after costs.
• Assuming the deduction is automatically the last word. Final-tax status depends on the section 154A(2) conditions and on not opting out under section 154A(3).
• Reading “IT-enabled services” narrowly. Clause (30AE) of section 2 names cloud computing, data storage and accounting services among others, and the list is not closed.

What to check in the official text

Read section 154A in full, then the Division IVA table in Part III of the First Schedule in the official PDF, since the site text of the Ordinance does not reproduce tables. Check clauses (30AD) and (30AE) of section 2 for the definitions. Section 154A(5) says the Board, in consultation with the State Bank of Pakistan, prescribes the mode, manner and procedure of payment, and section 154A(6) lets the Board include or exclude services. Any such notification is not held in this corpus.