Pakistan considers ten-year tax holiday for freelance techies
Could clean up dispute over who collects tax and when, but unlikely to worry outsourcing rivals
Pakistan’s minister for IT and Telecom, Syed Aminul Haque, has floated the idea of a ten-year tax holiday for freelancers, suggesting the move could improve the nation’s services exports.
The idea was mentioned in Pakistan's 2021 Draft Freelancing Policy [PDF] and the minister minister raised the idea again last week at a meeting of Pakistan’s Committee on IT Exports Growth, a forum whose name says a lot about what the nation hopes to achieve with the policy.
In 2020 Pakistan revealed a plan to grow tech services exports from $1.25bn to $5bn within three years.
Yesterday, the Ministry for IT and Telecom revealed good progress towards that goal.
The net #exports for the period July-December FY2021-22 are US$ 972 million which is 74.65% of US$ 1.302 billion in exports. Last year, for the same period the net exports were US$ 681 million which was 71.01% of US$ 959 million in exports.#MOITT #DigitalPakistan— Ministry of IT & Telecom (@MoitOfficial) January 23, 2022
Those posts generated responses pointing out that Pakistan’s tech exports are less than one percent of neighbouring India’s. Pakistan also has a poor track record of creating companies to match the likes of Indian tech services giants Wipro, HCl, TCS or Infosys – all of which have substantial head starts in building global presences, methodologies, and alliances.
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Pakistan has therefore focused on freelancers as its route to winning tech exports, suggesting that locals can use freelance platforms to start micro-businesses. The draft policy suggested Pakistan could even provide subsidized broadband and health insurance to registered freelancers.
But tax concerns have already confused Pakistan's plans, as the nation's Pakistan’s tax authorities sought to have a popular cross-border payments company Payoneer - a rough PayPal equivalent favored as a cash courier for Pakistani freelancers - collect tax from incoming payments. Payoneer pushed back, saying that freelancers need to sort out their own tax affairs.
Exempting freelancers from paying tax is one way to sort out that mess and a decent incentive for Pakistanis to consider freelance tech services as a way to put food on the table. It’s also a policy that will help Pakistan’s government to deliver on promises to create new jobs but will depend on another promise to improve local broadband services.
For readers outside Pakistan, the plan may well make for new sources of competition: Pakistan’s cost of living is low compared to the west, so freelancers there can compete on price. Which is of course a poor criterion on which to make a choice for any tech task. ®