Pakistan’s FY2026-27 budget, presented on June 10 by Finance Minister Muhammad Aurangzeb, drew a divided verdict from the technology industry. IT Minister Shaza Fatima Khawaja called it a “massive win” for the sector. Former P@SHA Chairman Syed Ahmed called it a failure. The truth sits somewhere in between: the budget delivered on a handful of specific, meaningful interventions while leaving structural problems untouched. We look at 5 key positives to come out of this year’s planning by the government:
1. IT Tax Exemption Extended to 2029. Three Years of Certainty.
The 0.25% Final Tax Regime for IT exporters and freelancers survives, and so does their reason to stay registered with PSEB
The single most consequential outcome for Pakistan’s IT sector was the extension of the income tax exemption under Section 65F, which keeps the Final Tax Regime rate at 0.25% for IT exporters and freelancers registered with the Pakistan Software Export Board. The extension runs to tax year 2029-30, giving founders, software houses, and freelancers a three-year planning horizon.
IT Minister Khawaja confirmed that Prime Minister Shehbaz Sharif personally intervened to prevent Section 65F from expiring in June 2026. The political significance should not be understated: the exemption had been due to lapse at precisely the moment Pakistan’s IT export momentum is accelerating, with $4.5 billion in sector forex inflows recorded over the last twelve months. Letting it expire would have been a policy own goal. “Credit goes to IT Minister Shaza Fatima Khawaja and the Finance Minister for securing this extension,” noted TechJuice analyst Muhammad Haaris. “They successfully prevented Section 65F from expiring this month.”
Industry veteran Syed Ahmed’s caution is worth noting: the extension is “seen with a grain of salt since the government has a sketchy track record of announcing multi-year tax benefits and then changing policy in the very next budget.” Fair. But the three-year signal is still the right one.
2. Cross-Border Card Tax Slashed from 5% to 0.5%
The single biggest operational cost reduction for startups, freelancers, and enterprises paying for cloud, SaaS, and AI tools
The reduction in withholding tax on international debit and credit card transactions from 5% to 0.5% is the most practically impactful decision in this budget for the working technology professional. Every Pakistani startup paying for AWS, Google Cloud, OpenAI API credits, Figma, Notion, GitHub, or any foreign SaaS product was being charged a 5% withholding tax on top of already unfavourable exchange rates. That rate has been cut to a tenth of its previous level.
Dawn’s Mutaher Khan provides the context: in 2025, Pakistani cardholders spent Rs528.7 billion across 119 million transactions. Of that, Rs332 billion worth of spending (69 million transactions) was on international platforms. The previous 10%-plus combined tax burden (federal excise duties, withholding, and forex fees) was pushing businesses to route payments through foreign-domiciled cards, Payoneer accounts, or stablecoin-backed wallets. The new 0.5% rate does not eliminate the distortion entirely, but it removes the most damaging layer of friction. For a digital economy trying to formalise itself, this matters.
3. Supertax Abolished for Most Businesses
IT companies growing past profitability no longer face a penalty tax designed for large extractive industries
The government removed the Supertax for most businesses, reducing it to 8% only for companies earning above Rs500 million. The Supertax was originally introduced as a revenue measure targeting banks and large industrial firms, but it had been applied broadly, catching profitable technology companies in a levy that was never intended for knowledge-economy businesses.
For Pakistan’s IT sector, where company formation is often constrained by the tax cost of growth, removing the Supertax for companies below the Rs500 million earnings threshold removes a disincentive to scaling formally. Combined with the reduced salary tax slabs (the 35% bracket is now restricted to salaries above Rs7 million) and the removal of the income tax surcharge, the budget creates a marginally better environment for IT firms to retain talent on formal payrolls rather than contractor arrangements.
4. Zero Duty on Smartphones and Feature Phones
Hardware access improves for the 100-plus million Pakistanis still on the wrong side of the digital divide
The government retained zero customs duty on smartphones and extended it to feature phones, removing duty on the entry-level handsets that serve rural and lower-income users who cannot yet afford smartphones. In a country where the Ministry of IT’s own data shows mobile and internet penetration lagging regional peers, the hardware cost of entry matters.
The budget also maintained zero duty on key digital equipment categories and introduced concessionary rates for Internet Service Provider machinery. These are, as Dawn’s Mutaher Khan described them, “sensible, supply-side nudges that could lower the cost of building out the pipes that everything else depends on.” They are not structural transformation, but they are directionally correct and better than the alternative of applying revenue pressure to the entry-point hardware that drives digital inclusion.
5. Submarine Cable Taxes Dropped to Zero and Rs3 Billion Allocated for IT Startups
Two smaller wins that point in the right direction: connectivity infrastructure and early-stage capital
Two lower-profile budget decisions deserve recognition. First, the government dropped taxes on submarine cables to zero. Pakistan’s digital traffic routes through a limited number of undersea cable landing points, and the cost structure around submarine cable infrastructure has historically been a hidden bottleneck on internet bandwidth economics for the entire country. Removing this tax cost addresses an infrastructure layer that rarely gets coverage but affects every internet user and IT export transaction.
Second, the government allocated Rs3 billion for IT startups and technology training under the Prime Minister’s Youth Program, with 5G services announced for deployment across five cities. The startup allocation is modest relative to what the sector needs, and the 5G announcement has been made before without meeting its timelines. But together with the Rs19.58 billion PSDP allocation for IT and telecom, these are markers of intent that the sector can hold the government accountable for delivering.
What This Means
The budget’s digital economy wins are real but narrow. They are concentrated in tax continuity (FTR extension), operational cost reduction (card tax), and hardware access (zero duty on devices). What they share is that they are all defensive measures: preserving what exists, reducing friction, avoiding reversals. The budget did not create new enablers. It maintained existing ones and fixed a handful of specific cost problems. For an industry that had feared the FTR expiring and card taxes continuing to spiral, that is meaningful. For an industry that needed AI investment, infrastructure transformation, and payroll reform to reach its next growth tier, it is not enough.
