- Section 65F provides a 100% tax credit on income from IT and IT-enabled services exports, subject to PSEB registration, 80% remittance through SBP-authorised channels and timely return filing.
- The “100% credit” headline ignores section 113 minimum tax (1.25% of turnover), which most asset-light software houses still owe.
- The STZA Ordinance 2020 offers a parallel ten-year income tax holiday — an alternative, not a supplement, to section 65F.
- ESOPs, foreign-exchange gains and consulting income sit outside the section 65F shelter and need separate planning.
Why it matters now
IT exports have become Pakistan's fastest-growing source of foreign exchange — and the tax regime that governs them is reviewed every Finance Act. Founders routinely arrive at our practice with the headline belief that IT income is “tax-free” in Pakistan. It is not. It is conditionally credited, and every condition is a potential audit trigger.
The recent Finance Acts have tightened both the remittance percentage and the documentation regime. PSEB registration, which was once a soft requirement, is now enforced administratively at the credit-claim stage. The interaction between section 65F and the STZA ten-year holiday has become a real planning question for any company raising capital or contemplating an IPO.
What is section 65F?
Section 65F was inserted into the Income Tax Ordinance 2001 by the Tax Laws (Amendment) Ordinance 2021, replacing the older clause (133) of the Second Schedule which had granted an outright exemption to IT exports. The mechanic shifted from exemption to tax credit, with conditionality.
The conceptual shift from exemption to credit matters because credits can be denied conditionally — exemptions are harder to revisit. Section 65F is reviewed and amended every Finance Act, and the conditions tighten almost every year.
Who qualifies
The credit is available to companies and AOPs (and, in a more restricted way, to individuals) earning income from IT and IT-enabled services exports. The practical eligibility test, as administered by FBR:
- 01Active PSEB registration through the relevant cycle.
- 02Income falls within the definition of IT services or IT-enabled services as defined in the Ordinance and PSEB notifications.
- 03At least 80% of export proceeds remitted into Pakistan through SBP-authorised banking channels and reported on Form-E.
- 04Timely filing of income tax return and statements (withholding, sales tax where applicable) for the tax year.
- 05No outstanding withholding compliance defaults under section 165.
Eligible export income
Clear inclusions: software development, SaaS subscriptions delivered to non-resident customers, BPO services, call-centre operations, data processing, technical writing, animation, gaming and similar electronically delivered services exported from Pakistan.
The boundary cases are where assessments are challenged. A company with mixed revenue — say, 70% SaaS exports and 30% local advisory — needs to segregate the books carefully. The credit applies to the IT export portion only.
Compliance conditions
The audit trail required to support a section 65F claim, in our experience:
- ·PSEB registration certificate, valid through the tax year.
- ·Form-E filings (or eForm-E electronic remittance certificates) reconciling to the company's bank statements and the export ledger.
- ·Customer contracts evidencing IT or IT-enabled service nature, with non-resident counterparty details.
- ·Invoices and SWIFT advices tying to Form-E filings — many disputes turn on reconciliation gaps.
- ·Withholding statements under section 165 for contractor and salary payments.
The section 65F credit eliminates income tax on eligible exports — but section 113 minimum tax remains.
Photograph · UnsplashThe “100% credit” reality
The most common founder misconception. Section 65F eliminates the income tax otherwise payable on IT export income — but minimum tax under section 113 of the Income Tax Ordinance 2001 may still apply at 1.25% of turnover.
For an asset-light software house with PKR 200m of export revenue and a 35% net margin, the math:
For higher-margin businesses the minimum tax creditability rules under section 113 can result in carry-forward, but the cash outflow is real and needs to be modelled into the FX retention strategy.
STZ alternative
The Special Technology Zones Authority (STZA) was established under the STZA Ordinance 2020 to grant fiscal incentives — including a ten-year income tax holiday, customs duty exemptions on capital goods, and SBP foreign-exchange flexibility — to zone enterprises and developers.
Section 65F and the STZA holiday are alternative pathways, not complementary ones. The choice depends on capital intensity, hiring profile and the planned capital event in the next three to five years.
For asset-light SaaS businesses with global customers, section 65F is usually simpler — no physical location requirements, no STZA licensing process, no zone-specific governance. For capital-intensive operations (data centres, hardware R&D, large back-office facilities), the STZA route can deliver materially better economics over a ten-year horizon.
ESOPs and the tax overlay
Two common founder questions. The first: does the section 65F credit shield ESOP grants? No. ESOPs are taxed under section 14 of the Ordinance as a perquisite, attributable to the employee, not the company. The credit applies to the company's income from IT exports.
The second: does the company have withholding obligations on ESOP grants under section 149? Yes — on the perquisite value at exercise (or vesting, depending on plan design), subject to the rules around fair value computation under IFRS 2. This is typically the biggest unbudgeted compliance task for growing tech companies, particularly those with foreign parent ESOP plans cascaded to Pakistani employees.
Legislative trajectory
Section 65F has been amended in every Finance Act since its insertion. The trend is towards tighter conditionality, higher remittance thresholds, and more documentation requirements. Headline speculation about the regime being “abolished” has so far been overstated — but the conditions around it have become materially stricter.
Working position with clients: assume the regime persists in some form, but model a scenario where minimum tax under section 113 is increased and PSEB-based eligibility is enforced more aggressively. Plan around compliance documentation quality, not optimistic interpretations of the statutory text.
What to do now
A four-quarter operating checklist for founders and finance leads:
- Q1Verify PSEB registration is current; reconcile prior-year Form-E filings against bank statements and customer invoices.
- Q2Segregate revenue between IT exports (eligible) and other income (consulting, IP licensing, FX gains) in the chart of accounts — saves audit time later.
- Q3Model section 113 minimum tax exposure based on actual turnover trajectory; provision in management accounts.
- Q4Pre-assessment review of customer contracts, ESOP plan compliance and withholding statements — fix any gaps before filing.