Taxation of Freelancers in Pakistan

When we call Freelancers it means self-employed individuals. It also means that the responsibility of filing your taxes with the Federal Board of Revenue or named as FBR falls squarely on your shoulders.

Your taxes aren’t automatically withheld by your employer. Thus, it’s up to you to report your income and pay the taxes.

Although the procedure may initially seem a little overwhelming, it isn’t as difficult as it first appears. You need to register yourself with the FBR through their online portal. This registration is much-needed because it officially signs you as a taxpayer in Pakistan.

But remember, the tax system applies whether you work locally or internationally. It is all related to a specific income level.

However, why is filing taxes such a big deal? Is there a tax exemption for freelancers? Well, it not only helps you to meet your legal requirements, but it also positions you for financial gains.

Once you’re formally registered, you can take advantage of many benefits such as bank loans, tax returns, and enhanced credit scores. And don’t talk about how you can avoid troublesome penalties. We all know that better. Right?

How Much Tax Do Freelancers Pay in Pakistan?

Here comes the burning question on every freelancer’s mind. You are probably thinking, how much do I have to pay? Or do I fall in this category currently?

Well, there is no fixed number answer. The amount and source of your money will determine the tax on freelancers in Pakistan.

For local income, tax rates vary. It depends on your earnings. For instance, if your income is less than PKR 600,000 a year, you may not have to pay any taxes. But if you exceed this threshold, tax applies to you. And the more you earn, the higher the percentage you’ll pay.

However, if you work for foreign clients and get paid in dollars, then the tax rates are much lower with multiple benefits. Reductions in tax rates are available to you; they typically range from 0.25% to 1%, depending on your registration status and if you’re considered a “tax filer.”

Step-by-Step Guide to Filing Taxes for Freelancers

Here’s a clear explanation of what you need to do to become a freelance tax filer in Pakistan. And don’t worry, there is no such technical jargon here that hinders your process of learning.

First Step: Register for Your NTN (National Tax Number)

• Visit the Federal Board of Revenue (FBR) website.

• Find the section for income tax registration.

• Fill out the online form with your information.

• Assemble the necessary paperwork, such as proof of address and CNIC.

• Submit the form and documents. This submission will initiate your registration process.

Step 2: File for Business Registration

• As your NTN is approved, the FBR will get in touch with you – mostly through email.

• To formally register your earnings as a freelancer, declare your income source. At this point, you need to complete Form 181. Don’t miss out on this step as it is a crucial element to legitimize your freelance income and meet tax regulations.

Third Step: File Your Tax Returns

• First Sort through your income records and file your tax returns for the current fiscal year.

• If you haven’t filed for previous years, file for those as well to regularize your tax status.

• Keep records of your income, expenses, and any documents that can help lower your taxable amount.

• If you require assistance understanding the procedure, speak with a tax professional—it’s better to be safe than sorry!

Fourth Step: Join the ATL, or Active Taxpayer List

• Pay the 1000 PKR ATL fee online or by bank transfer. You can also go with Easypaisa.

• After the payment is processed, your name will be added to the Active Taxpayer List in a matter of hours.

• If your name appears on this list, you will receive a reduction in the withholding tax rate.

Tax Deductions and Benefits for Freelancers

Here is the cool thing for taxpayer freelancers.

Get Your Tax Benefits

The lower tax rate is one of the main benefits of registering with the Pakistan Software Export Board (PSEB). You will only be taxed at 0.25% on export receipts, as opposed to the standard 1%. That’s a significant savings that puts extra cash in your pocket!

Gain Access to Government Initiatives

Enrolled in the PSEB? Not yet. Well, it is one of the keys to accessing multiple government programs that can support your expanding freelance business. You can obtain government contracts, finance for exports, and even free training.

Boost Your Client’s Trust

Clients like working with people they can trust. Being registered with PSEB adds a stamp of credibility to your name.

Your Entry into the Global Market

You have access to foreign markets with PSEB. Now, You can discover new prospects overseas with the assistance of PSEB’s global connections.