The documentation of economy has always remained a key objective of every government when it comes to the preparation of budget every year. Same is the case for the present government. This carries a multiplier effect when combined with the pressure from the lenders and other stakeholders, whereas, it is also an open fact that Pakistan’s undocumented sector is 56% of its GDP as of 2019. In order to control the informal economy, it is essential that firefighting measures are taken, and all the loopholes are plugged in. The conversion of available exemptions in the tax laws into the tax credits could also be a way through which damage control can be achieved. However, before taking any such measure, the cannons of taxation in any jurisdiction must be considered so that the long-term objectives are not compromised while reaping the short-term benefits. The amendments brought in by Finance Act 2021, at times will make one think that all is not well with the services sector especially the startups and the IT sector, although one could disagree with this. The income of the IT sector as generated from the exports of the computer software, IT services or IT enabled services have remained exempted from tax under clause 133 of Part I of the Second Schedule of the Income Tax Ordinance, 2001 [the Ordinance] subject to the condition that 80 per cent of the export proceeds is brought into Pakistan in foreign exchange, remitted from outside Pakistan through normal banking channels. This exemption costed the national exchequer around PKR 2 billion. Likewise, the profit and gains derived by a startup as defined in clause 62A of section 2 for the tax year in which the start-up is certified by the Pakistan Software Export Board and the following two tax years used to be exempt under clause 143 of Part I of the Second Schedule of the Ordinance. While, as per the published stats, that costed PKR 553 million to the national treasury. Interestingly, both could have otherwise given a booster dose to our economy but are withdrawn. This could be termed as the partial information if it is not discussed that same way that now have been substituted by the tax credit inserted via new section 65F of the Ordinance. If both the startups and IT sector are generating income from the exports of computer software or IT services or if IT enabled services comply with the certain conditions specified then they would be eligible for a tax credit equal to 100 per cent of the tax payables under any provisions of this Ordinance including minimum, alternate corporate tax and final taxes besides a condition for later sector that 80 per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels. The tax deductible under section 154A of the Ordinance would be a final tax on the income arising from the transactions referred above, upon fulfilment of certain conditions The conditions laid down would include the submission of annual income tax return, withholding tax statements for the relevant tax year that have been filed with respect to the provisions of the Ordinance, where the person is a withholding agent, and the sales tax returns for the tax periods corresponding to relevant tax year that have been filed if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws. All these three conditions would, without any doubt, reduce the impact of informal economy and help in setting a trend for disclosures, although it would also give rise to the compliance cost of the taxpayers a bit. At the same time, a new provision similar to that of export of goods has been introduced for the export of services as per the section 154A of the Ordinance. Every authorized dealer in foreign exchange shall, at the time of realization of foreign exchange proceeds on account of the specified export of services, would deduct tax from the proceeds at the rate of 1 per cent of the proceeds of the export. The proceeds that would be covered under the garb of section 154A of the Ordinance that firstly include exports of computer software or IT services or IT enabled services in case tax credit under section 65F is not available; secondly, the services or technical services rendered outside Pakistan or exported from Pakistan; thirdly, the royalty, commission or fees derived by a resident company from a foreign enterprise in consideration for the use outside Pakistan of any patent, invention, model, design, secret process or formula or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided to such enterprise; fourthly, the construction contracts executed outside Pakistan; and lastly, other services rendered outside Pakistan as notified by the Board from time to time. The tax deductible under section 154A of the Ordinance would be a final tax on the income arising from the transactions referred above, upon fulfilment of certain conditions. It shall not be considered as final tax in case the conditions are not fulfilled or in case a person opts out for normal taxation instead of final taxation. However, the option is required to be exercised every year at the time of filing of return under section 114 of the Ordinance. The conditions which are required to be fulfilled for treating same as the final tax, would include the submission of annual income tax return, withholding tax statements for the relevant tax year that have been filed in respect of those provisions of the Ordinance, where the person is a withholding agent, and the sales tax returns for the tax periods corresponding to relevant tax year have been filed if the person is required to file Sales Tax Return under any of the Federal or Provincial sales tax laws, whereas, no credit for foreign taxes paid shall be allowed. However, the modus operandi for charging tax on the export proceeds would be decided by the Federal Board of Revenue (FBR) in consultation with the State Bank of Pakistan. Now, let me consider few amendments that are brought in for the services sector rendering services locally. The 3 per cent of withholding tax under clause b of sub-section 1 of section 153 of the Ordinance allowed to the specified sectors have now been extended to two more sectors including collateral management services, and travel and tour services which could be termed as positive development for both of them. However, in respect of manpower outsourcing services, an explanation has been given according to which the tax rate of 3 per cent shall be applicable only to a service provider whose services are subjected to withholding tax on gross receipts, and the service provider that has not agitated taxation of gross receipts before any court of law. Although the given explanation does not limit it to the manpower outsourcing services, however, it seems that it relates to it only considering the amendment that has been made after recent judgment of Honourable Sindh High Court dated 27 April 2021 against C.P No.D-2694 of 2019 & others in which it was decided that tax of 3 per cent shall be charged on the amount of gross fees of manpower outsourcing service providers and not on the gross receipts which are received by them. There still stands a viewpoint that this explanation would easily be struck off by the superior courts again. Overall, the measures taken by the government in respect of services sector are commendable. However, it is recommended that few further measures must be taken in this regard. For instance, the definition of all the specified sectors like what would it exactly include, who are eligible for 3 per cent of tax on provision of services locally are not mentioned giving rise to abuse of the provision. Similarly, the insertion of explanation for manpower outsourcing service providers would give rise to litigation that it should be revisited. While for giving the taxpayer the confidence and ensuring convenience for them, one window return solution should be brought in at earliest which would reduce the compliance cost of the taxpayer and also save the time of both the taxpayer and the administrator. Similarly, the tax on IT sector under section 154A of the Ordinance would not be collected if it is eligible for tax credit under section 65F of the Ordinance which is quite ambiguous, such as the authorized dealer in foreign exchange would ensure that the conditions given for claiming the tax credit would be complied to at the start of the year. If any undertaking is obtained from the taxpayer then what would be the level of enforcement done? While if exemption certificate is required to be obtained under section 159 of the Ordinance similar to that required in case of section 100C of the Ordinance for non-profit organizations, then what kind of procedure requires clarification from FBR? The writer is a tax expert, researcher, and corporate trainer. He has studied International Taxation from the Chartered Institute of Taxation in the UK and is also a member of the Institute of Chartered Accountants of Pakistan (ICAP). He can be reached at mmuzammil309@gmail.com