TAXATION PROBLEMS FACED BY IT & IT ENABLED SERVICES EXPORT SECTOR/ FREELANCERS IN PAKISTAN | TAXCAST

Exporting IT and IT-enabled services has become an integral part of the country’s exports. The IT exports of Pakistan for the fiscal year 2021-22 were estimated to be around USD 3.5 billion, which is 66% higher than the fiscal year 2020-21, and is estimated to reach USD 5 billion in the fiscal year 2022-23. A significant part of IT exports comprises IT services and IT-enabled services which are generally exported by freelancers.
Freelancing has now become one of the most common means of IT Exports in Pakistan, and due to the Covid-19 pandemic, its volume has increased drastically over the last few years. Pakistan currently ranks 4th among the world’s fastest-growing freelance markets and it significantly impacts Pakistan’s economy.
Before March 2021, the export of IT services and IT-enabled services/ Income of freelancers was exempt from tax with the condition that eighty percent (80%) of the export proceeds are remitted through normal banking channels to Pakistan as foreign exchange.
On March 22, 2021, the Government of Pakistan issued Tax laws (Second Amendment) Ordinance, 2021, in which tax exemption was withdrawn from the export of IT services and IT-enabled services and introduced 100% tax credits on the export of IT services and IT-enabled services subject to the fulfillment of some conditions for proper documentation of the economy and freelancers.
In the Finance Act 2022, effective from July 01, 2022, the clause for a 100% tax credit was omitted, making freelancers and IT service exporters liable to pay taxes.
Every foreign exchange authorized dealer/ bank is required to deduct tax at the following rates from the remittance proceeds:
The tax-deductible above by the authorized dealer/bank is the final tax. This means no further tax will be required to pay if the taxpayer/ freelancer fulfills the following conditions:
The annual income tax return has been filed,
Withholding tax statements have been filed (if applicable),
Federal or provincial sales tax returns have been filed (if applicable); and
There shall be no credit for any foreign taxes paid.
If any of the above conditions is not fulfilled, additional tax will be required to pay by the taxpayer on the applicable tax rates i.e. 29% in case of a company and 5% to 35% in case of an individual or AOP according to the slab rates. Further, tax deducted by banks will be adjustable against the tax liability.
In summary, freelancing income is taxable in Pakistan, and banks deduct 1% income tax (0.25% if registered with PSEB) from the payment of freelancers. Additional tax is also applicable on profits, and the rate depends on various factors such as income volume and whether certain conditions are met.
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[@HMalikTaxPractitionerFBR]

Ma Sha ALLAH - Sharif ud din Khilji sb our senior, expert and leader of young practitioners.

[@taxationistcorporateconsultant]

Indeed, he is great.

[@BusinessCoachP]

Very nice

[@taxationistcorporateconsultant]

Thanks.

[@hanifulislam3883]

Ma Sha Allah, Appreciated... great work 👍

[@taxationistcorporateconsultant]

Thanks Bro.

[@TheUmaiz]

Timer 28:31 pr he says, k kuch k Uper sales tax ki compliance nhe banti thi, but file kr den..... etc Ye bta saktae hen k ks pr file krna zaruri nhe, agr kr de tou bhter ha?

[@taxcare8784]

great work Khurram Bai

[@taxationistcorporateconsultant]

Many many thanks

[@03008353511]

Masha Allah, very knowledgeable video for Pakistani taxation

[@taxationistcorporateconsultant]

Thanks.

[@syed6060]

I receive through transfer Wise, registered at PSEB as well and have declared at 154A in annaul tax return. Is this OK? What about sales tax. Do freelancers are liable to it as well?

[@unitedlawassociates]

Sir as per section 28A imputable income. IT exporter tax deducted is nominal I.e .25% of proceeds but income is too much than tax deducted. Can we declare income too much than tax deducted because business expenses are less

[@emrandawood]

Thank you, this is super informative. Can you please confirm how can individual freelancers submit the Final Tax (if bank hasn't deducted) to the FBR? I am unable to get an answer from anywhere on that. I would like to know the exact steps/ process (like do we need to visit FBR office/ or what exactly is the process) I can take to submit the tax I am supposed to the FBR. Please advise. Thanks

[@Leosgaming1234]

much appreciated for this video

[@taxationistcorporateconsultant]

Thanks ☺️

[@msk-digitalservices5506]

khuram sb, this is good informative video, but this lack regarding replies on the queries, pl spare some to reply

[@malikkashifyaqoob6]

VERY INFORMATIVE SIR... keep it up!... sir please guide what are codes to be mentioned in PRCs? which are acceptable by PSEB or FBR related to IT and IT enabled service

[@muhammadtoqeeriqbal]

9186

[@khalidiqbaldawar]

MashAllah keep up the good work

[@taxationistcorporateconsultant]

Thanks

[@ahmedmuneebziaamz9659]

Ma Sha Allah, Appreciated

[@ali-13392]

Should freelancers register as "Business" (Sole Proprietor) in FBR portal?

[@usmankhawar5302]

what if the freelancer receives it in FCY local account USD? Will it be subject to same Final Tax regime?

[@muhammadtoqeeriqbal]

I am continually receiving payment from payoneer to local bank, and withholding tax is not deducted, Isko ab file kesy kren ??

[@MuhammadAli-tu9bi]

Alaww. Comprehensive... Well explained. Sir, individual has to file statement u/s 165 even if revenue is less than threshold of withholding agent? Coz even if no tax is deducted, statement has to be filed?

[@MuhammadAli-tu9bi]

Or the legal point is that fisrt we have to establish withholding agent u/s 153(7); if yes, no tax deducted; 165 has to be filed?