Efficacy of ITA for Pakistan IT & ITES Sector IT and the ITES Sector

Outline  ITA Agreement  Perspectives  Developed Economies  Emerging Economies  Developing Economies  Pakistan Perspective: IT & ITES Sector

ITA  ITA plurilateral trade agreement under WTO  Concluded in Dec 1996  Under this agreement the signatories has to eliminate the tariffs on a list of IT and Telecom products.

ITA Coverage

Perspective A Developed Country THE BROAD CANVAS

Product structure of world exports of IT products 10

Leading exporters of IT products K. MICHAEL FINGER, WTO ITA SYMPOSIUM, MARCH,

Leading importers of IT products K. MICHAEL FINGER, WTO ITA SYMPOSIUM, MARCH,

Perspective An Emerging Economies

India opposes WTO move to expand ITA products list 21 May 2015

Perspective Pakistan THE BROAD CANVAS

Historical Background Pakistan acceded to this agreement in and, thus tariff on IT trade was eliminated, these reforms were revoked after a shorter period of time.

Hypothesis  Pakistan should join Information Technology Agreement to accelerate its software and hardware exports abroad.  Pakistan to join WTO ITA for zero duty binding for import of IT hardware and software under this agreement, which could have significant impact on Pakistan’s snail-pace IT exports.

Current Tax Regime  Presently Pakistan is among the five countries which has highest taxes on the imports of the IT products including  Custom duties ranging between 10 to 25%  Sales tax 17%  Non-adjustable Income Tax 5.5%.  However if Pakistan eliminates the tariff for a list of IT and Telecom products, subsequently trade on IT products would increase manifold, which would bring major economic benefits in the long run. The volume and the growth of the sector would also be enhanced and our internet users’ penetration may also increase from 11% to 33%

Categorization IT & ITES Services Sector Software Development Companies Business Process Outsourcing (BPO) Companies Startup Companies and the ITES Sector

Combined Results of Pakistan’s 13 Industry Leaders

Tax Regime  Pakistan is taxing Topline Revenue (inclusive of Sales Tax) at 9.28% instead of profits  Taxes paid out of capital if company making losses or in Start-up Phase  Most of the companies are working between net average profit margins of 4.8%  New Tax regime will significantly reduce new business starts-ups, foreign investments & established businesses and the ITES Sector

Broader Perspective  A careful study considering the tradeoff analysis  Size of Export  Size of Imports  Simulating effect of signing the treaty on  Exports & Imports  Indirect benefits: penetration of advanced technologies, medical equipment, tracking devices etc  Resolve the issue of taxation on local IT products and services

Hypothesis  If Pakistan eliminates the tariff for a list of IT and Telecom products  Trade on IT products will increase  It will bring major economic benefits in the long run  The volume and the growth of the sector would also be enhanced  Internet users’ penetration will also increase

Evaluate the Complete Space 24 CURRENT ITA TRADE VOLUMES $1310 bn 3.5 bn 31 bn 91 bn ADDITION FROM ACCESSION BY ARGENTINA, BRAZIL, CHILE, MEXICO, RUSSIA, SOUTH AFRICA INCL. VOLUMES BETWEEN ALL ACCEDING COUNTRIES EXPANDI NG PRODUC T COVERA GE AMONGS T EXISTING ITA MEMBER S ADDITION OF COMPUTER AND INFORMATION SERVICES ADDITION OF COMMUNICATION SERVICES 217 bn 3.4 bn 45 bn EXPANDING MEMBERSHIP EXPANDING SCOPE 89 bn 39 bn CURRENT SCOPE