efficacy of ita for pakistan it & ites sector it and the ites sector
TRANSCRIPT
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