The IT sector has significant potential for incentivisation. Pakistan's promising youth population of about 250 million people is seeking incentives to contribute significantly to IT exports.
FREELANCE ECONOMY
The IT sector has significant potential for incentivisation. Pakistan's promising youth population of about 250 million people is seeking incentives to contribute significantly to IT exports.
Almost 60 per cent of the population consists of youngsters with enormous potential to boost stagnant exports. They definitely need incentives to increase tax-free IT exports and support growth and investment in Pakistan. The 0.25 per cent tax on IT and IT-enabled services may be withdrawn to facilitate IT and tech freelancers' contribution to the economy. Economic emergencies and exigencies require the country to achieve high growth targets to avoid the poor policy option of taking on more and more loans. That is absolutely necessary to get out of the present morass.
The current budget shows a significant rise in IT and tech exports, indicating the huge potential of ICT exports through freelancers engaged in the formal, non-formal and informal sectors of the economy. IT and IT-enabled services contributed about $4 billion in exports in the outgoing fiscal year. Freelancers contributed about $1 billion in ICT exports, representing significant growth and accounting for more than 49 per cent of inflows on a year-on-year (YoY) basis. That is a great leap forward. But the government needs to further facilitate young freelancers so they can contribute more to the IT sector and boost exports. The Internet of Things and artificial intelligence (AI) have brought about revolutions and need to be promoted by the government at all levels to enhance exports.
Roughly 70 per cent of Pakistan's population is under 35 years old, making it one of the youngest countries in the world. This young demographic dividend can contribute significantly to digital fields, including the massive freelance and IT sectors. Pakistan is the fourth-largest freelance market, with hundreds of thousands of registered IT freelancers. They have the capacity and capability to turn the digital market into a multi-billion-dollar digital economy.
The gig economy is booming. Tech freelancers can bring hundreds of billions of dollars in export remittances by exploiting the fourth-largest digital market through digital services. The top skills include software and web development, mobile app development, graphic design and content writing, making a strong case for facilitation.
It is beyond the understanding of both ordinary and well-educated Pakistanis why the IT sector is not being given an open field, making it a perfect case for a tax-free regime. It instead needs rebate and incentive schemes to boost exports. Unemployed youngsters are in dire need of the freedom and facilitation to open bank accounts without any hassle, enabling freelancers to receive and make payments without restrictions. They are often compelled to open accounts in foreign countries to receive their earnings and make urgent payments. The stringent conditions imposed by banks are a major hurdle to the smooth running of IT businesses.
The gig economy is booming. Tech freelancers can bring hundreds of billions of dollars in export remittances by exploiting the fourth-largest digital market through digital services
One of the biggest headaches for IT freelancers is receiving payments through normal banking channels, as they cannot receive payments via PayPal Pakistan. As a result, clients insisting on PayPal either leave or resort to risky workarounds. Why? No one can explain the reason for such negligence by the government. Banks convert dollars at the interbank rate, resulting in huge losses for individual freelancers. Banks usually ask for PSEB registration, an NTN, and proof of work for any amount exceeding $5,000 per month. Interestingly, freelancers are using Payoneer, JazzCash, SadaPay and NayaPay freelance accounts. However, Meezan Bank, Bank Alfalah and HBL offer freelance accounts with higher monthly ceilings with minimal hassle.
In addition to the above, internet access and speed are among the top issues faced by IT freelancers today. Slow internet speeds have curtailed freelancers' earnings by 40-50 per cent on average, which is a huge loss by any measure. The 2-3 million freelancers, if properly facilitated, can earn more than $10-15 billion in a year. One can imagine the export earnings of 20-30 million freelancers over the next five years if free internet access is provided and 5 G speeds are restored by the government. Export earnings may touch around $100-150 billion over the next five to 10 years, according to some estimates.
Freelancers earning through social media in the age of AI should not be discouraged by the government. They should be free from any sort of tax burden, and their earnings should be tax-free, as they contribute to foreign exchange reserves. The modern global economy has taken a new turn, becoming a tech-driven world with apps running the show. Meta, in support of AI, has already done away with the old concept of large, palatial offices for big businesses.
This is the era of e-business, where apps rule the world. Social media freelancers are taking full advantage of the AI-backed social media revolution and earning substantial income. If they are properly facilitated, they can contribute even more and bring billions of dollars to Pakistan. Restrictions on them would have the opposite effect and should therefore be discouraged and avoided at all costs.
There is an immediate need to intervene and incentivise the IT sector to help IT/tech freelancers enhance exports. First of all, the internet should be free. Access to high-speed internet should be ensured for IT users. Critical IT infrastructure needs to be modernised, and VPNs should be immediately unlocked for registered freelancers and PSEB companies. Companies such as Starlink and PayPal may be issued licences after all codal and legal formalities are completed to facilitate smooth IT business.
Freelancers should be incentivised by mandating zero banking fees on IT earnings and allowing them to retain their money in US dollars. They should be facilitated through a one-window operation using a single ID covering PSEB, NTN and a USD IBAN, enabling all formalities to be completed within 10 minutes.
Youngsters may be engaged in acquiring high-value skills through additional funding for AI automation courses, cybersecurity, SAP, medical billing, game development and software development. The Silicon Valley model may be adopted to immediately fund and promote e-commerce and IT businesses, thereby earning and bolstering foreign exchange reserves. Pakistan can become an IT hub if its youth are properly engaged and freelancers are incentivised and given a free hand to contribute to the economy. Freelancers can be incentivised by declaring the IT sector and IT earnings tax-free. Other incentives could include awards, rewards, green number plates, blue passports, and fast-track entry and exit at all airports.
Pakistan needs to chalk out a long-term IT sector incentive and reform plan spanning 15 to 20 years. Freelancers should be facilitated to boost IT and IT-enabled services. Pakistan can achieve high growth targets by promoting this sector and its freelancers. But that requires 15 to 20 years of uninterrupted high-speed internet, one-ID facilitation through one-window operations, and educational reforms in the IT sector. Freelancers are, in fact, high-end users of IT services who need to be promoted, incentivised and facilitated by the government at all levels to achieve ambitious economic growth targets.
The writer is a former additional secretary and can be reached at: [email protected]
