Pakistan is rapidly advancing in the field of freelancing worldwide. Millions of Pakistani youth are earning thousands of dollars per month through platforms like Fiverr and Upwork. Similarly, tax laws are also being tightened by the government of Pakistan and the Federal Board of Revenue (FBR).
Many freelancers are confused about whether their income is subject to tax. What is the tax rate? And how to satisfy the FBR when requesting money from PayPal or other banking channels?
The government of Pakistan considers freelancing a regular business sector. Freelancers are considered an important pillar of the country’s economy as they bring valuable foreign exchange into the country. However, to document the economy, the FBR has made it mandatory for freelancers to become filers and declare their income. We will explain to you all the aspects of freelancing tax.
Legal status of income from Fiverr, Upwork and other platforms
When you work on Fiverr or Upwork, the money you receive is directly transferred to your Pakistani bank account through Payoneer. Under the Income Tax Act, this money falls under the category of 'Export of Services'. If you are providing services to a foreign client from Pakistan and he is sending you money from abroad, then this will be called 'foreign remittance' or 'export income'.
Freelancing Tax Rates in Pakistan (Current Laws)
The tax laws for the IT and freelancing sector are divided into two major categories:
Registered IT Services and Freelancers (Concessional Tax)
If you are registered with the Pakistan Software Export Board (PSEB) or Pakistan Freelancers Association and your income comes to Pakistan through banking channels, then you are subject to a fixed tax rate ranging from 0.25% to 1% if you are a filer and have a PRC (Purpose Remittance Certificate).
Unregistered Freelancers
If you are not registered with any board like PSEB and are remitting money only as an individual, the bank may deduct up to 1% withholding tax (WHT) on your money, which can be considered your final tax liability if all conditions are met.
Tax Rate
IT/ITES Export: Registered with PAEB 0.25%.
General Freelancers: Unregistered (Banking Channel) 1.0%
Unregistered and Non-filers: Up to 5% (or normal tax slab)
PayPal Alternatives and Tax Issues
PayPal is not directly available in Pakistan, but the government of Pakistan has recently introduced Payoneer and other popular payment gateways as alternatives to PayPal to bring money to Pakistan. When PayPal money is transferred to a bank account through a third party, the FBR checks the purpose for which the money was received.
Importance of PRC
Always obtain a Purpose Remittance Certificate (PRC) when receiving money from the bank. This certificate has a specific code (such as 9186 for IT services). This code is proof to the FBR that the money is not illegal.
How to become a tax filer for freelancers?
If you are a top-rated seller on Fiverr or Upwork or are earning a good monthly income, you should immediately become an FBR filer. If you remain a non-filer, you may have to pay double tax on banking transactions, vehicle or property purchases.
How to become a filer (step-by-step guide):
Obtaining NTN: Visit the FBR’s Income Tax Portal (Iris) and register using your National Identity Card. This will generate your National Tax Number.
Business Edition: Add “Freelancing” or “IT Services” as your business in your profile.
Filing Income Tax Return: Submit your annual income statement (tax return) before September 30 every year.
Declaring Foreign Source Income: Disclose your Fiverr and Upwork income in the ‘Foreign Source Income’ or ‘Export of Services’ box in the return form.
Sales Tax Law for Freelancers
In addition to income tax, provincial revenue authorities in Pakistan (such as PRA in Punjab, SRB in Sindh, and FBR in Islamabad) levy sales tax on services. Generally, IT and freelancing services that are being exported outside Pakistan (i.e., the client is outside the country) are subject to a sales tax rate of 0% (zero-rated).
Condition: To avail this benefit, you must be registered with the relevant provincial authority or have it properly disclosed in your return.
How to avoid an FBR notice?
Follow the following to avoid an FBR notice:
Proper use of bank accounts: Keep a separate bank account for freelancing money and do not use it for personal household transactions.
Investment records: If you are buying a car or plot with freelancing money, make sure that the money is shown as 'white money' in your tax return.
Documentary evidence: Always keep PDF files of Fiverr/Upwork earning history and bank statements with you.
Summary and Future Strategy
Tax on freelancing provides legal protection to your business. Earning from PayPal alternatives, Fiverr, and Upwork and paying minimal taxes on it makes you a responsible citizen of the country. The current government policies are very lenient for freelancers, so becoming a filer on time and sending money to Pakistan with the correct codes is the best strategy.
FAQs
Is the freelancing money coming into JazzCash also taxable?
Yes, whether the money comes into the bank or JazzCash/EasyPaisa, if it falls under the category of commercial or foreign remittance, then tax rules apply to it.
If my monthly income is less than Rs. 50,000, do I still have to pay tax?
If your annual income is less than Rs. 6 lakh (within Pakistani borders), then income tax is not applicable, but a small withholding tax can be deducted at the bank level on foreign export services, which can be claimed by filing a return.
Why is PSEB registration necessary?
Registration with PSEB gives you plus points, which further reduces your tax rate to 0.25%.
(Disclaimer)
This information is for educational and informational purposes only. Tax laws are subject to change, so be sure to consult a professional tax consultant before taking any legal action.