Budget 2026 failed to address the major demands of the IT sector. It seems the government is perfectly happy with 20% annual export growth, which could be 200% with the right policies.
That verdict comes from Syed Ahmed, former Chairman of P@SHA, the Pakistan Software Houses Association, speaking to TechJuice after the budget was presented. It is the harshest assessment of the week. It is not without basis.
On the other side, Dawn analyst Mutaher Khan concluded that while the budget delivered incremental supply-side nudges, it left the infrastructure layer of Digital Pakistan structurally under-incentivised. “For Digital Pakistan to be a genuine growth engine rather than a slogan, the infrastructure, ie critical hardware, needs to be incentivised.”
Here are the five decisions, or non-decisions, that the digital economy needed to go differently as per prominent analysts within the country.
1. Mobile Taxes Were Not Cut. They Were Quietly Raised.
The IT Ministry pushed for relief on the 15% advance tax and 19.5% GST on mobile users. The Finance Ministry and FBR refused both.
This was the most anticipated budget decision for Pakistan’s 190-plus million mobile subscribers, and it went the wrong way. The Ministry of IT had formally recommended reducing both the 15% advance income tax and the 19.5% General Sales Tax on mobile users, arguing that Pakistan’s combined mobile levy burden is among the highest in the region and directly suppresses digital inclusion. The proposals were rejected.
More significantly, the government announced it would target Rs27.685 billion in revenue from 4G and 5G licence fees in FY27, an increase over the prior year. The headline “5G in five cities” announcement sits awkwardly alongside a fiscal strategy that relies on telecom licence revenue to meet budget targets. The result is a government simultaneously promising to accelerate digital connectivity and pricing the sector’s operators through licence and levy structures that compress their capacity to invest in that connectivity. The IT Ministry lost this argument to FBR, and mobile users will feel it.
2. The Payroll Tax Gap Is Destroying Pakistan’s Corporate IT Sector
Freelancers pay 0.25%. Corporate IT employees pay 30% or more. No budget measure addressed this distortion.
This is the structural failure at the heart of Pakistan’s IT industry that the budget did nothing to fix. Under the current tax architecture, a Pakistani software engineer working as a freelancer registered with PSEB pays a flat 0.25% Final Tax Regime rate on their foreign income. The same engineer, doing the same work for the same global clients, but employed by a Pakistani IT company on a formal payroll, faces income tax at rates that can exceed 30%.
Former P@SHA Chairman Syed Ahmed was direct: “No one will want to pay 30%+ tax vs 0.25% tax; hence, most IT workforce will prefer to work as freelancers rather than working for a corporate company as an employee.” The consequence of this distortion is compounding. Pakistan’s IT export growth figures are real, but they mask an industry that is increasingly structured as a collection of individual contractors rather than institutionalised companies capable of winning enterprise contracts, building product at scale, or absorbing the investment and talent required to compete with Indian or Eastern European IT firms. Closing the payroll tax gap was P@SHA’s top structural ask. It was not addressed.
3. No Budget Allocation for AI. None.
Every major economy is building national AI infrastructure. Pakistan’s budget has no dedicated AI line.
Syed Ahmed’s sharpest criticism was on artificial intelligence: “There seems to be no major allocation for budget for AI when countries are spending hundreds of billions of dollars in this vital and strategic area.”
The contrast is stark. The United States committed $500 billion for AI infrastructure through the Stargate initiative. Saudi Arabia has pledged to invest $100 billion in AI by 2030. India has a $1.2 billion national AI mission. The UAE and Singapore have both announced sovereign AI computing infrastructure. Pakistan, which has signed a significant volume of AI MoUs over the past eighteen months, from Alibaba and Baidu to the GO AI Hub with Saudi Arabia, has no corresponding domestic investment in AI compute, research, or national model development in this budget.
The Rs3 billion for IT startups under the PM Youth Program is the closest proxy, but it is a skills and access programme, not an AI infrastructure investment. A country that aspires to be an AI hub for the region but allocates no dedicated public capital to AI in its national budget is leaving the gap between aspiration and reality for the private sector and foreign partners to fill. That is not a strategy.
4. Fibre and Network Equipment Tariffs Remain at 70%. The Infrastructure Layer Is Broken.
Dawn’s Mutaher Khan identified this as the “missing piece in Digital Pakistan.” Last-mile fiberisation remains economically unviable at current tariff levels.
This was the most analytically precise budget criticism to emerge in the week following June 10. Writing in Dawn on June 15, Mutaher Khan laid out the structural problem clearly. The digital economy rests on a three-layer architecture: enablers at the bottom (telecom networks, fibre, hardware), earners in the middle (software houses, e-commerce platforms, freelancers), and consumers at the top. The budget delivered incremental relief for the earning layer. It largely ignored the enabling layer.
The specific failure: tariffs and duties on fibre optic cable and network equipment critical for last-mile fiberisation remain at approximately 70%. This makes expanding broadband connectivity to secondary cities, towns, and rural areas economically unviable for ISPs and telecom operators at commercial rates. Every other digital economy priority, AI adoption, e-commerce, remote work, digital payments, depends on reliable broadband at scale. The budget offered zero customs duty on SIM card raw materials and concessionary rates for ISP machinery, which Khan described as “sensible, supply-side nudges” that remain “incremental.” The foundational infrastructure investment that would actually change Pakistan’s broadband economics was absent.
5. The Creator Economy Tax Went the Wrong Way
YouTube and TikTok income taxed at 5%, up from 1%. The government penalised Pakistan’s fastest-growing digital income category.
Pakistan’s digital content creator economy is among the fastest-growing in the region. YouTube, TikTok, and related platform monetisation represent a documented and growing source of foreign exchange income for a segment of young, digital-native Pakistanis who are self-employed, tax-compliant through platform withholding, and generating real export earnings.
The budget raised the withholding tax on income received from social media platforms from 1% to 5% at source. For tax residents, this is a minimum rate against their overall tax liability. For non-residents, it functions as a final tax. Dawn’s Mutaher Khan noted the practical enforcement gap: non-residents “are unlikely to bring their platform payouts to Pakistan” under a higher tax regime, which means the measure risks pushing creator income further offshore rather than bringing it into the formal economy. The government’s instinct to tax a visible and growing income category is understandable. The direction of this specific intervention is counterproductive.
What This Means
The budget’s digital economy failures share a common characteristic: they are all decisions that prioritised short-term revenue over structural enablement. Mobile levy revenue was protected. Payroll tax reform was deferred. AI investment was absent. Infrastructure tariffs were left in place. Creator economy formalisation was made harder rather than easier.
The FTR extension buys three more years of the status quo. What Pakistan’s IT industry needs is not three more years of the same structure. It needs a step-change in infrastructure investment, a payroll tax fix that makes it rational to build companies rather than contractor networks, and a national AI commitment that matches the rhetoric of the MoUs being signed. The budget did not deliver those things. The next one will need to.
