(042) 35300721
Mon - Fri 09:00-17:00
Free consultant

IMF-imposed ‘Ordinance’ & IT exports

Huzaima Bukhari & Dr. Ikramul Haq

According to a Press report, the coalition government of Pakistan Tehreek-i-Insaf (PTI) before the release of tranche of US$ 500 million by the International Monetary Fund (IMF) agreed to make amendments in the Income Tax Ordinance, 2001 to withdraw tax exemptions. Resultantly, the President of Pakistan in exercise of the powers conferred by Article 89(1) of the Constitution of the Islamic Republic of Pakistan [“the Constitution] promulgated Ordinance VII of 2021 on March 22, 2021, with immediate effect. The notification says that this Ordinance “shall be called the Tax Laws (Second Amendment) Ordinance, 2021”.

Through the Ordinance VII of 2021, among many other changes, exemption available to the IT exports till tax year 2025 has been converted into 100% tax credit on the fulfilment of a number of conditions that were not imposed earlier and cannot be met retrospectively! This created uproar in the National Assembly on March 29, 2021 and a strong protest was lodged by the Chairman of Pakistan Software Houses Association.

On the very first sitting of 31st session of National Assembly on March 29, 2021 [prorogued sine die after lack of quorum on April 5, 2021], Opposition termed the Ordinance VII of 2021 unconstitutional on the basis of the following provision of the Constitution as amended by the Constitution (Eighteenth Amendment) Act, 2010, [commonly called 18th Amendment]:

Procedure with respect to Money Bills

73  (1) Notwithstanding anything contained in Article 70, a Money Bill shall originate in the National Assembly:

Provided that simultaneously when a Money Bill, including the Finance Bill containing the Annual Budget Statement, is presented in the National Assembly, a copy thereof shall be transmitted to the Senate which may, within fourteen days, make recommendations thereon to the National Assembly

According to a Press report, “The opposition parties in the National Assembly…strongly protested against promulgation of the Income Tax Ordinance and the State Bank of Pakistan Ordinance, terming the moves to impose additional Rs. 700 billion taxes on masses unconstitutional and demanding withdrawal of the two ordinances”. The report adds: “Federal Ministers Hammad Azhar, Dr Shireen Mazari and Adviser to the Prime Minister on Parliamentary Affairs Dr Babar Awan, however, said that no violation of Constitution was committed in promulgation of the ordinance”.

The Speaker Asad Qaiser, after giving ruling in favour of the government invited legal experts from both the treasury and opposition benches to further deliberate on the matter. He said: “I will not let the Constitution be violated”.  

The principle of “no taxation without representation”, embodied in Article 77 read with Article 162 of the Constitution, has been perpetually and flagrantly violated in Pakistan by all the governments since 2008. The prime culprits are legislators who have been delegating their legislative power of levying taxes to the Executive. This is in utter violation of Article 77 of Constitution: No tax shall be levied for the purposes of the Federation except by or under the authority of Act of Majlis-e-Shoora (Parliament).  

In the past, many FBR stalwarts [retired Member Policy, Dr. Muhammad Iqbal et al] have been insisting that the words “by or under the authority of Act”, as used in Article 77 of the Constitution, authorise “taxation by delegation” as well which they considered justified doing so through Statutory Regulatory Orders (SROs). However, before the Supreme Court inMessers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.), Additional Attorney General submitted:

“……the levy and exemption of tax is the function of Parliament under Article 77 of the Constitution and…… power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”..

Authority to issue Statutory Regulatory Orders (SROs) for extending any kind of exemption or concession or withdrawing the same in respect of any tax or even through a Presidential ordinance, unless emergent situation exists, is gross violation of Article 162 of the Constitution which says:

“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”

In the light of above, can the President promulgate any Ordinance in the nature of Money Bill? Obviously nobody told the IMF and Speaker National Assembly. The legal team of Premier, Imran Khan, also misguided him about the scope of Article 89 read with Articles 73, 77 and 162 of the Constitution. Hopefully, this malpractice of imposing or waiving taxes through delegated powers (SROs) and by Presidential Ordinances will end. The Presidential Ordinances are meant for emergent circumstances. The Ordinance issued for securing tranche of IMF was a bad move, even if not strictly against the Constitution—confirming our complete economic subjugation that PTI before coming to power promised to end!

The impact of immediate applicability of Tax Laws (Second Amendment) Ordinance, 2021 from March 22, 2021 is withdrawal of exemption under clause (133), Part I, Second Schedule to the Income tax Ordinance, 2001 to exporters of IT and IT-enabled services. The omitted clause reads as under:  

“(133) Income from exports of computer software or IT services or IT enabled services upto the period ending on 30th day of June, 2025:

            Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels.

            Explanation.– For the purpose of this clause–

  • “IT Services” include software development, software maintenance, system integration, web design, web development, web hosting, and network design, and
  • “IT enabled services” include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing”.

From March 22, 2021 when only three months are left to close the books for tax year 2021, the Tax Laws (Second Amendment) Ordinance, 2021 requires from above mentioned class of taxpayers and new startups vide newly inserted section 65F of the Income Tax Ordinance, 2001 to avail 100% tax credit meeting the above conditions and additionally the following conditions:

  • tax required to be deducted or collected has been deducted or collected and paid;
  • withholding tax statements for the immediately preceding tax year have been filed;
  • sales tax returns for the tax periods corresponding to relevant tax year have been filed; and
  • their case can be selected for audit through computer balloting or by the Commissioner of Inland Revenue on whims.

The same conditions have been applied to Thar Coal Project under China Pakistan Economic Corridor (CPEC) enjoying unconditional exemption that is now withdrawn retrospectively, which is a matter of great concern as it is for “persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects”. On the other hand, unconditional income tax exemption available to the existing Independent Power Producers (IPPs) funded by International Finance Corporation (IFC) and other World Bank institutions would continue and not subjected to above conditions and tax will be levied only on new plants established after June 30, 2021. The same should have been the case for successful China’s projects under CPEC—as a matter of uniform policy for all. If emergent situation existed, was it only to damage local IT industry and Chinese projects under CPEC?  This is a crucial question showing the real agenda of IMF of destroying our ability to earn billions of dollars through IT exports and hamper economic progress under CPEC to get rid of external loans.

It is pertinent to mention that exports of information and communication technology (ICT) services increased 40% during the first half of the current financial year and the Ministry of Commerce is expecting that these would cross $2 billion this year. The most significant increase in exports was witnessed in ‘telecom & ICT services’—increased to $958 million in the first half of the current fiscal year as compared to $684 million in the same period of previous year.

According to news story[i] dated March 15, 2021, before the promulgation of the Ordinance:

“International tax expert Dr Ikramul Haq has said that the proposed Income Tax Amendment Bill 2021 submitted to the National Assembly has proposed to withdraw some existing and many futuristic exemptions under the China-Pakistan Economic Corridor (CPEC).

Speaking as a guest in “Paisa Bolta Hai[ii]” with Anjum Ibrahim on Aaj News, here on Sunday, Dr Haq explains that the exemption of Thar Coal project is proposed to be deleted under the said Bill. The proposed withdrawal of First Year Allowance in the Bill would hit many capital intensive industries, and many Chinese companies committed to come for many corporate-related benefits may reconsider their plans as initial depreciation on plant and machinery used for the first year has already curtailed to 50 percent. These actions will harm new industrial investment in Pakistan.

He stated that the government has retained exemption granted to the Chinese company operating in Gwadar, but the companies support to it will get no concession and pass the burden of the port operator. There was no need to bring a Bill effective from July 1, 2021 in March instead as part of the regular Annual Finance Bill along with the Budget for fiscal year 2021. The need for urgency is not understandable when the Bill has not to take effect immediately. No public debate and consultations are held with stakeholders likely to be affected by the proposed changes in the Bill. This is undemocratic as well as against the spirit of the Constitution, Dr Ikram said.

He stated that it is a matter of concern to withdraw exemptions granted to the successful Chinese projects. On the other hand, the income tax exemption available to the existing Independent Power Producers (IPPs) would continue and only new plants established after June 30, 2021 will be taxed.

He said that the government is continuing exemptions where they have their own interest, but some CPEC-related projects [considered as game changers] and also those to be executed on the basis of joint ventures between Chinese and local companies have been targeted. The sunrise industries with innovation, especially SMEs, are discouraged to earn billions of dollars through IT and IT-enabled exports due to cumbersome procedures.

He said that the government instead of giving relief to all industries and businesses, making them unviable to survive. Huge tax expenditure in income tax is due to enormous tax-free benefits to the big segments and not because of industries that are providing jobs even in difficult times.

International tax expert stated that it is a prior condition of the International Monetary Fund for release of US$500 million to withdraw tax exemptions and concessionary rates. The same could have been made part of regular budget exercise to determine their overall impact on the economy and challenges faced due to Covid-19 pandemic.

He said that the Federal Board of Revenue (FBR) for the first time gave item-wise analysis of the tax expenditure for 2019-20. Prior to this, there was a small analysis of tax expenditure as chapter in the Economic Survey every year.

On the sales tax side, the Bill has proposed to impose 17 percent sales tax on Liquefied Petroleum Gas (LPG) imports and its local supplies LPG from July 1, 2021.

The proposed Bill has withdrawn many tax credits. For example, the government has also proposed to withdraw tax credit to companies who are offering jobs to young graduates. The credit-based exemptions being withdrawn during the current situation of unemployment and Covid.

Dr Ikram stated that the IT sector is already facing heavy taxation at the time of input like 19.5 percent provincial sales tax; 12.5 percent advance income tax and 10 percent activation charges that will be promised to be reduced gradually. The Ministry of IT and other ministries are very supportive in view of futuristic challenges being faced by the IT sector.

International tax expert said that the FBR is still not able to clear Rs50 million refunds despite clear directions from the Prime Minister issued many months back.

It is unfortunate to see that the FBR is collecting 95 percent of its direct taxes revenue from withholding taxes, advance tax and tax with returns, and remaining 5 percent with their own efforts.

Dr Ikram suggested that a simple Inland Revenue Service (IRS) code is needed for the taxpayers to avoid repetitions and complications in various federal tax laws, except customs duty that should also be reduced to maximum of 5 percent. Where there is local production of the same goods, the regulatory duty can be imposed to protect domestic sector. A tax intelligence system is needed by curtailing the discretionary powers of the tax officials and facilitates taxpayers through one-window operation.

Chairman Pakistan Software Houses Association Barkan Saeed stated that the government intended to take IT sectors into the tax credit regime which has totally failed in case of non-governmental organisations (NGOs). It seems to be an attempt to stop this sector from further growth. The proposed tax credit scheme for the IT sector is so complicated that even chartered accountants have failed to understand the same.

He stated that IT & IT enabled service sector has given record exports growth despite the pandemic with 40 percent increase in 2019-2020 and is on track to exceed $2 billion by the end of this financial year.

He quoted Bangladesh where the IT sector has not only been granted tax exemption, but also 10 percent cash rewards/rebate. On the other hand, the replacement of exemption with the tax credit scheme would only result in harassment to the IT sector by the Commissioners Inland Revenue. The IT sector would receive different kinds of notices by the FBR’s field formations. The conditions to register with sales tax of provincial authorities and filing of withholding tax statements are unnecessary for this sector. If the IT sector is not being facilitated in taxation matters, people would move to countries like Bangladesh.

He questioned what would be the future of freelancers and small IT service providers who are unable to hire tax consultants for maintaining documents under the proposed tax credit scheme.

Barkan Saeed stated that the documentation of the IT sector is evident from the fact that we have to first register with the Securities and Exchange Commission of Pakistan (SECP), then Federal Board of Revenue (FBR) and all provincial sales tax authorities. Besides, we have to register with the EOBI/social security/disability programme and operate under the provincial laws and pay local taxes like stamp duty. Now they are proposing income tax on IT and IT enabled services.

President Federation of Pakistan Chamber of Commerce & Industry (FPCCI), Nasir Hayat Magoo stated that the government should have consulted the stakeholders before withdrawal of income tax exemptions through a Bill. The FBR should have discussed the proposals with the concerned industries and sectors.

He added that the government cannot only rely on the five major export oriented sectors and need to facilitate other sectors as well.

The FBR should stop harassing the businessmen due to discretionary powers of the tax officials, said President FPCCI”.

[i] https://www.brecorder.com/news/40073516/income-tax-amendment-bill-2021-several-exemptions-under-cpec-proposed-to-withdraw-expert, accessed on 7 April, 2021

[ii] https://www.youtube.com/watch?v=fy_cR8gITF8, accessed on 7 April, 2021



Ms. Huzaima Bukhari, Advocate High Court and Visiting Faculty at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is editor of Taxation and partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003, she was associated with Civil Services of Pakistan. Since 1989, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals. She has to her credit over 1500 articles on issues of public importance, printed in various journals, magazines and newspapers at home and abroad.

She has coauthored with Dr. Ikramul Haq many books that include  Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Dr. Ikramul Haq, is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

She regularly writes columns for Pakistani newspapers and has contributed over 1500 articles on issues of public finance, taxation, economy and on various social issues in various journals, magazines and newspapers at home and abroad.


Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  https://www.amazon.com/dp/B08RXH8W46

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.


The joint and individual books and articles of the writers can be seen at:




Related Posts

Leave a Reply