Knowledge Management

Incentive Package

- Income Tax Incentives

- Customs Incentives

- Sales Tax Incentives

- Facilities by Pakistan Telecom Authority (PTA)

- Facilities by PTCL

- Facilities by Security and Exchange Commission of Pakistan (SECP)

- Facilities by State Bank of Pakistan

Income Tax Incentives

Income of computer training institutions set up between 01-07-1997 and 30-06-2000 was exempt from income tax. The
government has extended the setting up period up to 30-06-2005. Consequently, income of training institutions approved
by the competent Board of Education or University etc. would continue to be exempt for five years in the case of
institutions set up to 30th June 2005. (Clause (92) of Part I of Second Schedule of Income Tax Ordinance, 2001)

Income from software exports up to 2016 is exempt from payment of income tax. However, a minimum tax @ 0.5% of
total value of exports was being collected. Through Finance Ordinance, 2000 the government has exempted software
exporters from 0.5% minimum tax liability. (Clause (133) of Part I of Second Schedule to Income Tax Ordinance, 2001)

The IT professionals, who are working as employees, will get substantial reduction in their tax liability. For example, in
cases where annual salary falls in income brackets of Rs. 201,000 to Rs. 300,000 the tax liability will be reduced by 30%.
The relief will be more in the case of IT employees falling in the lower income brackets. (Para (1) (2) of Part III of Second
Schedule to Income Tax Ordinance 2001)

In addition to the reduction to all salaried persons, the tax payable by full time teacher or a researcher, employed in a
non profit educational or research institution, duly recognized by a Board of Education or a University or the University
Grants commission (UCG), shall be further reduced by an amount equal to 50% of the tax payable after the reduction
mentioned in Para (C) above. (Para (2) of Part III of Second Schedule to Income Tax Ordinance 2001)

Exemption of income tax and minimum tax is available on the profits and gains of venture capital funds registered under
"The Venture Capital Companies and Funds Management Rules, 2000". The exemption would be available for a period
of seven years from 1st July 2000 to 30th June 2007. The exemption has been notified through an amendment in the
Income Tax Ordinance 1979 made through notification No. 127(I)/2001 dated 27.2.2001. The provision of section 80D
relating to minimum tax would not apply to venture companies and venture capital funds, which are exempted from
income tax under clause (101) of Part-1. (Clause (23) of Part IV of Second Schedule to Income Tax Ordinance 2001)

An exemption similar to the one listed in "E" above has been allowed on income tax and minimum tax on the profits of
venture capital companies through notification number 894(I)/2000 dated 19.12.2000.

In the budget 2001-2, depreciation allowance in respect of personal computer hardware has been increased to 30%.
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(Part 1 of the Third Schedule to Income Tax Ordinance 2001)

Income from export of computer software and its related services developed in Pakistan is exempt from income tax,
provided that the exemption under this clause shall not be available after the 30th day of June, 2016.

(The exemption from tax on income specified in H above is under clause (133) of Part I of the Second Schedule to
Income Tax Ordinance 2001)

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Customs Incentives

- Machinery and equipment for the manufacture of items used in the field of Information Technology falling under
heading 9933 of chapter 99 of Pakistan Customs Tariff have been subjected to zero percent customs duty. The list of
such items is as under:

- Quartz reactor tubes and holders designed for insertion into diffusion and oxidation furnaces for production of
semiconductor wafers

- Chemical vapor deposition apparatus for semiconductor production and parts thereof

- Spin dryers for semiconductor wafer processing and parts thereof

- Deflash machines for cleaning and removing contaminants from the metal leads of semiconductor packages prior to
the electroplating process

- Spraying appliances for etching stripping or cleaning semiconductor wafers and parts thereof

- Machines for working any materials by removal of material, by laser or other light or semiconductor wafers

- Machines for dry-etching pattern on semiconductor materials

- Apparatus for stripping of cleaning semiconductor wafers

- Focused ion beam milling machines to produce or repair masks and reticles for patterns on semiconductor devices

- Laser cutters for cutting contacting tracks in semiconductor production by laser beam

- Machines for sawing monocrystal semiconductor boules into slices or wafers into chips

- Grinding, Polishing and lapping machines for processing of semiconductor wafers

- Dicing machines for scribing or scoring semiconductor wafers and parts thereof

- Grinding, Polishing and lapping machines of processing of semiconductor wafers

- Parts of focused ion beam milling machines to produce or repair masks and reticles for patterns on semiconductor
devices

- Laser cutters for cutting contacting tracks in semiconductor production by laser beam

- Encapsulation equipment for assembly of semiconductors and parts thereof

- Extruders of a kind used for plastic, of capacity not exceeding 76.2 mm diameter for encapsulation

- Automated machines for transport, handling and storage of semiconductor wafers

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- Wafers cassettes, wafer boxes and other material for semiconductor devices

- Apparatus for growing or pulling monocrystal semiconductor boules

- Apparatus for physical deposition by sputtering on semiconductor wafers or for wet etching, developing, stripping or
cleaning semi-conductor wafers

- Flat panel displays

- Coaxial deposition machines for semiconductor wafers

- Spinners for coating photographic emulsions on semiconductor wafers

- Machines for bending, folding and straightening semi-conductor leads

- Physical deposition apparatus for semiconductor production, or for the manufacturers of semiconductor devices on
semiconductor wafers and parts thereof

- Ion implanters for doping semiconductor materials

- Direct write-on-wafer apparatus

- Step and repeat aligners

- Optical stereoscopic microscopes fitted with equipment specifically designed for the handling and transport of
semiconductor wafers or reticles

- Photo micro graphic microscopes fitted with equipment specifically designed for the handling and transport of
semiconductor wafers or reticles

- Electron beam microscopes fitted with equipment specifically designed for the handling and transport of semiconductor
wafers or reticles

- Pattern generating apparatus of a kind used for producing masks or reticles from photo resist coated substrates and
parts thereof

- Instruments for measuring or checking semiconductor wafers or devices

- Optical instruments and appliances for measuring surface particulate contamination on semiconductor wafers

- Optical instruments and appliances for inspecting semiconductor wafers or devices or for inspecting masks photo-
masks, reticles used in manufacturing semiconductors

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- Items relating to computers and Information Technology falling under heading 9934 of Pakistan Customs Tariff have
been subjected to zero percent of customs duty. The complete list of such items is as under:

- Automatic data processing machines and units thereof

- Magnetic or optical readers

- Machines for processing such data

- Computer systems

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- Laptop computers

- Note books

- Plam top computers

- Central processing units

- Key board

- Mouse

- Storage units

- Disc and tape drives

- Networking equipment (i.e. routers, LAN bridges, hubs, SNA cluster controllers, multi-station access units)

- Optical fiber converters

- Fast ether net adapters

- Control units

- Adapter units

- Parts and accessories for computers like casing with power supply, toner and ink cartridges (excluding refills) and
gateways

- Modems

- Microphones having a exceeding 10 mm and a height not exceeding 3mm for telecommunication use

- Loudspeakers without housing, having a frequency range of 300 Hz to 3.4 KHZ with a diameter of not exceeding 50
mm, for telecommunication use

- Computer discs and diskettes

- CD-Rom (blank)

- Software on CD-Rom

- Software on magnetic tapes and diskettes

- Recorded media for reproducing representations of instructions, data sound and image, recorded in a machine
readable binary form

- Capable of being manipulated or providing interactivity to a user

- An automatic data processing machine

- Indicator panels incorporating liquid crystal devices (LCD) or light emitting diodes (LED) and parts thereof

- Fixed carbon resistors

- Composition or film types variable resistors including Irheostats and potentiometers and parts thereof

- Electronic AC switches consisting of optically coupled input and output circuits (insulated thyristor AC switches)

- Electronic switches including temperature protected electronic switches consisting of a transistor and a logic chip (chip
on chip technology) for a voltage not exceeding 1000 volts

- Electromechanical snap action switches for a current not exceeding 11 amps

- Plugs and sockets for co-axial cables and printed circuits

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- Wafer probers

- Diodes, other than photo sensitive light emitting diodes

- Mounted piezoelectric crystals and parts thereof

- Cards incorporating an electronic integrated circuit (smart cards)

- Metal oxide semiconductors (MOS technology)

- Circuits obtained by bipolar technology

- Other circuits including circuits obtained by a combination of bipolar and MOS technologies (BIMOS technology)

- Other monolithic integrated circuits

- Hybrid integrated circuits

- Ion implanters for doping semiconductor materials

- Proximity cards and tags

- Electrical machines with translation or dictionary functions

- Computer leads

- Heomatographs and electro-phoresis instruments

- Spectrometers

- Spectro-photometers

- Meters and spectrographs using optical radiations (Uv, visible, ir) instruments and apparatus using optical radiations
(Uv, visible, ir) and parts thereof

- Other instruments and apparatus, specially designed for telecommunication (for example cross-talk meters, gain
measuring instruments, distortion factor meters, psophometers)

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Sales Tax Incentives

- Sales tax exemption is available to computer hardware including lap tops, notebooks, PCs, main frame and their
peripheral units and parts thereof vide serial number 45 of the Sixth Schedule of the Sales Tax Act, 1990.

- Sales tax exemption is available to computer software under serial number 48 of the Sixth Schedule of the Sales Tax
Act, 1990.

- Central Board of Revenue has held vide their letter No. 1(98) STT/2000 dated 20th May, 2002 that such parts and
equipment which are primarily used for networking of computers are entitled to exemption as 'computer hardware' under
serial number 45.

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Facilities by Pakistan Telecom Authority (PTA)

- License fee has been reduced from rupees one lac to rupees fifty thousand for ISPs starting business at tehsil level
across the country with effect from 1st March 2001.

- Annual royalty fee has been reduced from 4% to 1.5% of the gross revenue with retrospective effect, which has further
been reduced to 0.66%.

- PTA has urged the PTCL to facilitate and provide speedy connectivity and infrastructure for the implementation of
announced package.

- In order to promote Internet usage, multi-metering on Internet dial up calls not allowed.

- Equipment tested in any world-class laboratory and complying with standards applicable in Pakistan will not require
further testing. A certificate duly attested by the manufacturers would suffice.

- PTA would finally dispose off Type Approval cases within 15 days.

- For locally produced equipment, self certified tests carried out at manufacturer's own facilities or at approved
laboratories would be acceptable.

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Facilities by PTCL

- PTCL has significantly reduced rates for International Bandwidth, with effect from 1st September 2000 both for Clear
Pipers as well as Shared Connectivity. For example rates for clear pipes for ISP & Software Exporters have been
reduced up to 75% and 69% respectively of the rates prevalent in July 1998. PTCL have further reduced the bandwidth
rates from 1st January 2002 (E1 gradually decreased from US$90 000 to US$6 000)

- PTCL is offering Tier-I Internet Backbone connectivity via SMW3 for ISPs and also international leased lines on clear
pipes for Software Exporters and educational Institutions.

- Further reductions in rates will be possible after availability of second STM-I by April 2003.

- PTCL has provided through partners XDSL solutions to its valued customers, who have enabled high speed Internet
access, and multimedia applications delivered cost effectively.

- Projects are in pipeline for deployment of High capacity fiber rings in the access network in major cities up to April 2003.

- Memorandum of Understandings has been signed with three major vendors namely M/S Alcatel, M/S Siemens and
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Multi-Tech to provide IT and Telecom Networking solutions speedily to customers. The cost of Internet bandwidth has
been reduced by 53% to enable service providers to reduce the rates for end user.

- PTCL have installed SITM (155Mbps) through SINGtel in July 2001, E3 (34Mbps) through Concert UK in October
2001, E3 (SEMEW3) Emirates in March 2002 and Simplext E3 in November 2002. PTCL presently is providing 257
Mbps.

- PTCL is providing Colocution facilities to ISPs and data operators in large cities since June 2002.

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Facilities by Security and Exchange Commission of Pakistan (SECP)

- Venture Capital Companies and Venture Capital Funds Rules 2001 have been issued vide SRO No. 131(I)/2001 dated
27.2.2001. (Rules may be seenon Security and Exchange Commission of Pakistan's website www.secp.gov.pk. These
rules have facilitated the venture capital companies and funds.

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Facilities by State Bank of Pakistan

- Banks have been allowed to open Internet merchant Accounts within the country. This will help development of e-
commerce.

- Banks will also be allowed to invest in the form of equity in dedicated venture capital funds meant for IT industry.

- Exports of IT software, hardware and internet-enabled services will be eligible for concessionary export finance under
the State Bank's Export Finance Scheme.

- Software companies are allowed to retain 35% of their export earnings in foreign exchange to meet the expenditure on
purchase of hardware/software, foreign travel, marketing and hiring of consultants.

- For providing credit to software companies, banks are allowed to accept firm contracts with foreign principals as
opposed to requirement of opening of letters of credits

- An e-commerce cell has been established in the State Bank of Pakistan to develop proposal for enhancing its use in
the financial institution

- State Bank of Pakistan has removed all restrictions on installation of Automatic teller Machines (ATM) in the country.
Every banking company shall, however, within seven days after the close of each reporting quarter, submit to the SBP a
quarterly statement regarding installation of Automated Taller Machines (ATMs), within and outside the premises during
the said quarter.

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