Pakistan has principally approved the move for joining the Information Technology Agreement (ITA) by signing the second phase of the agreement. The formal announcement of the decision by the the Federal cabinet is on its course.
The aim behind joining Information Technology Agreement is to stimulate the IT sector in Pakistan by boosting investment in IT, telecom and e-commerce. Subsequently, it will create numerous job opportunities in the country. An official source revealed, that the former Prime Minister Nawaz Sharif, had formed a Secretaries’ committee including secretaries from IT, commerce, various industries and revenue division to evaluate the inclusion in ITA-II.
Pakistan is one of the top five highest import tax paying countries in the world on IT products till date. Therefore, the government has to take some serious steps to provide tax relief to the sector in order to foster its growth. The committee is expected to give its feedback next week based on which the PM Abbasi will announce his final decision.
Country’s IT sector holds a chunk of $2.8 billion in the global IT sales, with $1.6 billion coming from exports of IT and software products. In the absence of Information Technology Agreement, majority of IT services are extended as freelance which makes Pakistan a major freelance services providing country. Therefore, none of this export income is being registered with the State Bank. Conversely, Indian software exports grew tremendously to $82 billion in 2015 versus $565 million in 1999 after signing ITA.
Revenue loss through tax elimination versus GDP growth
Federal board of Revenue (FBR) does not agree to the idea of tax elimination resulting into a revenue loss of Rs3 billion in deducting customs duty and Rs6 billion in tax reduction. In addition, Ministry of IT, Ministry of commerce and industries’ secretaries are backing this decision.
The proponents suggest that the revenue loss can be easily compensated with higher revenue generation which would be possible through GDP growth. In the long run, more IT firms will be encouraged to establish their businesses.
The inclusion in ITA would also reduce smuggling of ICT products in the country. Currently, 70% of IT products are being smuggled which include mobiles, computers and accessories. Therefore, reduced smuggling and higher foreign direct investment will gear up the sector.
The inception of ITA began in 1996 at the first WTO Ministerial Conference in Singapore. It started off with only 29 countries signing the agreement and currently has 82 member countries comprising of almost all IT product trading countries.
ITA works on the principle of complete removal of tariffs and duties on IT trading products. The member countries are required to follow the basic three rules:
- The products given in the agreement must be included
- All the listed products must be included
- All other duties and charges must be removed
Pakistan was trying to become part of ITA since 1997 but could not execute it till date. Other countries have not only signed their agreements but also expanded their agreements to ITA-II. For Pakistan, if the final decision is affirmative, tariff reduction will start soon and all other taxes will be removed with the next 3 years.