Mediaboss Marketing

March 20, 2014

TheDirectorate General of Intelligence and Investigation InlandRevenue (IR) has unearthed massive misuse of exemption claimed byphoney IT companies engaged in internet marketing (online sales)under the garb of exporting computer software/IT services, causingloss to the tune of billions.

Sources told Business Recorder here on Wednesday that the massive misuse of exemption regime is a classic example that how an exemption granted to genuine exporters in IT sector was grossly misused by the phoney IT companies. The so-called IT companies are actually selling online (at a Number of websites) "Brain Dump" material pirated from reputable international companies like Microsoft. Currently the IT brain dump industry of Pakistan is prominently dominated by a Faisalabad-based company, the largest testing materials vendor.

Through analysis, agency found that the number of cases dealing in computer software stood at 3480. The volume of exempt income declared by 538 major cases for Tax Year 2013 is Rs 6.30 billion, reflecting huge sum of exemption claimed under clause 133, Part I, of the Second Schedule of the Income Tax Ordinance, 2001.

The income tax exemption available on export of software/IT services has been specifically misused by phoney IT companies providing online testing/training and certification tools for IT professionals through Internet marketing, under trademarks. The agency has conducted detailed analysis of the wrongly claimed exemption under clause 133, part-1 of second schedule of Income Tax Ordinance, 2001. The exemption regime was introduced to incentivise the growth of IT sector, especially export of software, IT services and IT enabled services. However like other segments of inland taxation, this regime (export of software) is also being grossly misused by phoney IT companies. Departmental lethargy in timely combating the crime has further encouraged the fraudsters.

The directorate has also carried out case study of a family of Faisalabad engaged in internet marketing (online sales) and wrongly claimed exemption by declaring such services as export of software to evade taxes to the tune of billions.

Details revealed that the clause 133, Part I, of the Second Schedule grants exemptions to Income from exports of computer software or IT services or IT enabled services up to the period ending on 30th day of June, 2016. For the purpose of this clause -

(a) "IT Services" include software development, software maintenance, system integration, web design, web development, web hosting, and network design, and

(b) "IT enabled services" include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centres, data entry operations , locally produced television programs and insurance claims processing.

The part 12 of Chapter XII of Foreign Exchange Manual of State Bank of Pakistan exclusively deals with the "Export of Software". The regulatory procedure for this segment of exports has been laid down as under.

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Online sales: misuse of exemption by phoney IT companies unearthed | Business Recorder