Efficacy of ITA for Pakistan IT & ITES Sector

IT and the ITES Sector

OutlineITA AgreementPerspectivesDeveloped EconomiesEmerging EconomiesDeveloping Economies

Pakistan Perspective: IT & ITES Sector

ITAITA 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

PerspectiveA Developed Country

THE BROAD CANVAS

Product structure of world exports of IT products

0%

20%

40%

60%

80%

100%

Telecom Telecom Telecom

Semi-conduc-tors

Semi-conduc-tors

Semi-conduc-tors

Computer Computer Computer

Other Other Other

10

K. Michael Finger, WTO ITA Symposium, 28-29 March, 2007

Leading exporters of IT products

11

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

China

ChinaEU(15)

EU(15)

United States

United States

Japan Japan

Hong Kong,China a Hong Kong, China aSingapore a Singapore a

Korea Rep. of Korea Rep. of

MalaysiaMalaysia

Other countries

Taipei Chinese

Mexico

a Includes re-exports

K. Michael Finger, WTO ITA Symposium, 28-29 March, 2007

Leading importers of IT products

12

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

United StatesUnited States

EU(15)

EU(15)

ChinaChina

Hong Kong, China aHong Kong, China a

Singapore a Singapore aJapan Japan

Korea Rep. ofKorea Rep. of

Malaysia MalaysiaMexico Mexico

Other coun-tries

Other coun-tries

Taipei Chinese

a Including imports for re-exports

PerspectiveAn Emerging Economies

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

PerspectivePakistan

THE BROAD CANVAS

Historical Background Pakistan acceded to this agreement in 2001-02 and, thus tariff on IT trade was eliminated, these reforms were revoked after a shorter period of time.

HypothesisPakistan 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 DevelopmentCompanies

Business Process Outsourcing

(BPO) Companies

Startup Companies

and the ITES Sector

Combined Results of Pakistan’s 13 Industry Leaders

Out

sour

cing

-Dom

estic

Out

sour

cing

-Int

erna

tiona

l

Softw

are

& Im

plem

enta

tion

- Dom

estic

Softw

are

and

Impl

emen

tatio

n - I

nter

natio

nal

Out

sour

cing

-Dom

estic

Out

sour

cing

-Int

erna

tiona

l

Softw

are

& Im

plem

enta

tion

- Dom

estic

Softw

are

and

Impl

emen

tatio

n - I

nter

natio

nal

2014 2014 2014 2014 2015 2015 2015 2015

-500,000,000

-

500,000,000

1,000,000,000

1,500,000,000

2,000,000,000

2,500,000,000

RevenueGross profitNet Profit/ (Loss) before Tax

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

bn31

bn

91 bn

ADDITION FROM ACCESSION BYARGENTINA, BRAZIL, CHILE, MEXICO, RUSSIA, SOUTH AFRICA

INCL. VOLUMES BETWEEN ALL ACCEDING COUNTRIES

EXPANDINGPRODUCTCOVERAGEAMONGSTEXISTINGITA MEMBERS

AD

DIT

ION

OF

CO

MP

UT

ER

AN

D

INF

OR

MA

TIO

N

SE

RV

ICE

S

AD

DIT

ION

OF

CO

MM

UN

ICA

TIO

N

SE

RV

ICE

S

217 bn

3.4 bn45 bn

EXPANDING MEMBERSHIP

EXPANDINGSCOPE

89 bn

39 bn

CURRENT SCOPE