Taxation and Filing for Freelancers in Pakistan
Taxation is a crucial aspect for everyone, including freelancers. By understanding Taxation for Freelancers in Pakistan, digital workers can enjoy benefits, especially if they become filers.
In Pakistan, filers pay less tax and enjoy various advantages.
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Let’s dive into the details to understand how taxation works for freelancers and how to become a filer.
Why Freelancers Should Understand Taxation
Freelancers in Pakistan can be divided into two main categories:
- Local Service Sellers
- Global Service Sellers
Both categories have specific tax regulations, and understanding these can help freelancers manage their finances better and take advantage of tax benefits.
1. Local Service Sellers
Example: Saleem, a software house owner, hires Uzair, a video editor from Sukkur, and pays him through a local bank account like UBL.
Local service sellers are taxed based on their income, according to the following table (updated June 2024):
| Taxable Income (PKR) | Not over (PKR) | Tax on Column 1 (PKR) | Tax on Excess (%) |
| Over 0 | Not over 600,000 | 0 | |
| Over 600,000 | Not over 1,200,000 | 2.5% | |
| Over 1,200,000 | Not over 2,400,000 | 15,000 | 12.5% |
| Over 2,400,000 | Not over 3,600,000 | 165,000 | 22.5% |
| Over 3,600,000 | Not over 6,000,000 | 435,000 | 27.5% |
| Over 6,000,000 | 1,095,000 | 35% |
Local service sellers must calculate their tax based on this table and file accordingly. You can also use this simple tax calculator to calculate your taxes.
2. Global Service Sellers
Example: David from Berlin hires a freelancer on Upwork, Fiverr, or directly through channels like Facebook, and pays through platforms like Upwork, Payoneer, or Fiverr.
Global service sellers in Pakistan enjoy significant tax advantages:
- They are subject to only 1% taxation.
- This rate further reduces to 0.25% if registered with the Pakistan Software Export Board (PSEB).
Most banks already deduct this tax, and freelancers can request a tax certificate from their bank. Being a global service seller is highly advantageous due to the lower tax rates.
How to Become a Tax Filer as a Freelancer in Pakistan?
To become a tax filer in Pakistan, follow these detailed steps. Our tax professionals can assist you through this entire process for a fee of 6000 PKR, ensuring all steps are covered. If you find the process complicated, you can consult our tax professionals for assistance. We will handle the the complete process for you, ensuring everything is done correctly and efficiently.
Step 1: Register for an NTN (National Tax Number)
- Visit the FBR Website:
- Go to the Federal Board of Revenue (FBR) official website.
- Look for the Income tax registration section. Learn more about the documents required for the Income tax registration/business registration
- Fill Out the Online Form:
- Complete the online NTN registration form with accurate details.
- Submit the required documents, such as your CNIC, and proof of address.
Step 2: Register Your Business
- Obtain Your NTN:
- Once your NTN is issued, you will receive a notification from the FBR.
- Declare Your Income Source:
- Register your business with the FBR by declaring your income source. This step (Form 181) is crucial for freelancers to legitimize their earnings and comply with tax regulations.
Step 3: Start Tax Filing
- File for the Current Year:
- Begin by filing your tax returns for the current fiscal year. Use the income records and documents you have maintained throughout the year.
- File for Previous Years:
- If you have not filed taxes in previous years and are liable to do so, you must file returns for those years as well. This step is essential to regularize your tax status.
- Seek Professional Guidance:
- Consult our tax professionals if you have any doubts or need help with the filing process. They can guide you through each step and ensure that your tax returns are accurate and complete. You can also visit this page if you need any information about documents required for tax filing.
Step 4: Pay the ATL (Active Taxpayer List) Challan
- Pay the Fee:
- To be included in the Active Taxpayer List (ATL), you must pay an ATL fee of 1000 PKR.
- Submit the Payment:
- Make the payment through the bank or online payment method as instructed by the FBR. You can pay with Easypaisa as we have done in the video.
- ATL Confirmation:
- Once the payment is made, your name will appear in the Active Taxpayer List within a few hours after the FBR updates its records.
Benefits of Being in the ATL
- Lower Tax Rates: As a filer, you will benefit from reduced tax rates.
- Compliance: Ensures you are compliant with Pakistan’s tax laws, avoiding penalties and legal issues.
- Learn more about the benefits of being a filer in Pakistan
Conclusion
Understanding and filing taxes is essential for freelancers in Pakistan. By becoming a filer, you can enjoy numerous benefits and ensure compliance with tax regulations. Whether you are providing services locally or globally, knowing how to handle your taxes will save you money and provide peace of mind. For more details on the benefits of being a filer, please read this blog or watch this video.
If you have any questions or need professional assistance, don’t hesitate to reach out to us. Let’s make tax filing simple and beneficial for you!