Question Tax Exemption for Pakistani Freelancers

[hussain114]

Hi there,

I've a question about tax exemption in Pakistan for Pakistani freelancers offering IT services.

I visited my tax consultant recently to file my tax returns for tax year 2019.

IT services are definitely 100% exempted from tax till year 2025, but to my surprise my tax consultant said that any income generated through IT services is fully taxable in Pakistan 'UNLESS' membership is acquired from Pakistan Software Export Board (PSEB).

I consulted PSEB, they said they don't offer membership to invididual freelancers, but if an individual freelancer can form a sole proprietorship company, then PSEB membership can be acquired easily.

And then you've to open a new business bank account and report all earnings to PSEB with Form-R and few other supporting documents.

And this is how an individual freelancer offering IT services in Pakistan can avail 100% tax exemption. This all sounds fine, but my concern is that the same tax consultant never gave me the same information earlier and now he's saying that all previous earnings are fully taxable just because I didn't had PSEB membership, which no one ever communicated to me, not even the same tax consultant ever told me before. And in fact not even 'Income Tax Ordinance 2001 - 2019 Amendment' states this in article 133 where it talks about income tax exemption on IT services.

I need input from other fellow pakistani freelancers on this.

Also please tell me did you know about above information before & if you've formed a company to avail tax exemption or are you still working without a company?

(I'll probably add more thoughts to this post as I consult with few more people).

Thanks

[8cc9fa9a]

I don't use payoneer...  (I think you are reffering to recent development of payoneerrelated issue)

[khan88388]

Not only poyneer
All will give tax now....

[abhysheikh]

Hi Brother,
I hope you'll be fine, Can you let me know the procedure how you solved this issue while registering yourself as a filer, I'm going to start it now and as you know our all income first goes to Payoneer and then on taking withdraw our bank statement shows us local bank transfer or atm funds transfer.
- should I need a PRC or not yet? should I go to my bank(s) to get all certificates?

Please guide me if you can, because you had faced this issue in the past, now I can expect you have a better answer.

Thanks in advance.

[hussain114]

The payments you receive in your bank through Payoneer, you can ask your bank to provide you PRC for those. And you can hire a professional tax consultant to make you a filer, it takes around 5-10k PKR.

[khan88388]

My question is that when I have made NTN. I was not aware about PRC. Now I'm getting payment from different payment methods like Skrill. Payeer etc. They all goes to poyneer and I withdraw from JazzCash and take PRC. It is ok for me. Because market place is very challenging

[farrukh_abdur]

Hi, I hope everyone is doing well.  I came across this in today's news. Something important coming up as it seems Fbr is about to issue notices to freelancers using Payoneer. Everyone should prepare documentation incase a situation arises. This can leave a negative impact on the freelancer community here. I am not sure what taxes are being considered and how accurate this news is.

https://www.techjuice.pk/pakistani-freelancers-yet-to-get-paypal-get-tax-notices-by-fbr/ 

https://www.thenews.com.pk/print/801845-fbr-unearths-rs60-bn-overseas-transactions-scam

[hussain114]

Let's see what happens when the situation unfolds in a few days or weeks. Looks like they're in a rush to decide on this. But looking at this country's track record, I'm not very hopeful, I don't think anything good will come out of this, because you can't really expect any IMPROVEMENT in this country in anything whatsoever. There will be more painful complex procedures.

Ideally, like Hisham Sarwar suggested, there should be a separate body for 'IT freelancers' which will register & issue a certificate to freelancers, they can do some random checks to ensure person is legit & still offering IT services, but beyond that point a freelancer must literally be untouchable by FBR. This must happen because some of us work 20 hours in a day to bring foreign exchange into the country, so we definitely don't appreciate being bullied by FBR. We need a peace of mind so we can focus on our work. Or if that's not possible, then other option is simply leave the country & migrate to some other country where talent & hardwork is welcome. It's called braindrain, I'm sure Pakistani govt & authorities never heard of it.

[khan88388]

My question is how can we proof FBR
If software board does not accept us.
We will pay tax and face hard aduit.
Which is pain full and our energy will be finished

[zahrafatima1992]

Please say something abou this.

Governemnt now withdraw the tax exemption and now replaced it with Tax Credit. Tax Laws (Second Amendment) Ordinance, 2021 is very complex. It is not clear that how Withholding tax statements and Sales Tax is become mandatory, Where IT Export is service and it is sold in other country both things do not come under FBR Sales tax, A Freelancer do not withhold tax because freelancer do nto purchase much.

"65F Tax credit for certain persons.- (1) Income of following taxpayers shall be allowed a tax credit equal to one hundred per cent of the tax payable under any provisions of this Ordinance including minimum and final taxes for the period, to the extent, upon fulfillment of conditions and subject to limitations detailed as under: - persons engaged in coal mining projects in Sindh supplying coal exclusively to power generation projects; a startup as defined in clause (62A) of section 2 for the tax year in which the startup is certified by the Pakistan Software Export Board and the next following two tax years;

(c) persons deriving income from exports of computer software or IT services or IT enabled services upto the period ending on the 30th day of June, 2025: Provided that eighty per cent of the export proceeds is brought into Pakistan in foreign exchange remitted from outside Pakistan through normal banking channels. Explanation.- For the purpose of this clause, — "IT services" include software development, software maintenance, system integration, web design, web development, web hosting and network design; and "IT enabled services" include inbound or outbound call centres, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations, locally produced television programs and insurance claims processing. (2) The tax credit under sub-section (1) shall be available subject to fulfillment of the following conditions, namely:- return has been filed; tax required to be deducted or collected has been deducted or collected and paid; withholding tax statements for the immediately preceding tax year have been filed; and sales tax returns for the tax periods corresponding to relevant tax year have been filed: Provided that nothing contained in this section shall preclude the applicability of section 214C or section 177.

[khan88388]

Now earning as a freelancer will be very difficult...... No one is clear about this law... They want sales tax... With holding tax... And services tax too... Means our all income will go into taxes to government

[8cc9fa9a]

This is really very confusing. Yesterday I watched a session with experts on this subject.

Search for Gaper on facebook for the following:

“Tax Ordinance and the future of IT”

Speakers Include:

Ahmad Uzair Basra, Partner at AUC Law

Muhammad Safder, Partner at Tariq Abdul Ghani Maqbool & Co

Moderator:

Ahmed Muzzamil, VP of Engineering at Gaper

I am not sharing the link because the ADMIN is blocking my post and removing my links for no reason. 

[khan88388]

They are actually wants no one can be happy... They make very difficult law. As a freelancer we are losing a our clients and confident. Sales tax. Services tax. With holding tax. All is **bleep** to cut the freelancer business. No one is asking to big buissness mans

[rizi20002000]

I have consulted with my tax return consultant few days back and he explained it to me that Freelancer is not a profession understandable by the government. Consultant said, earning from foreign is still exempted from tax if freelancer fulfill few terms added by government. I honestly have forgotten all of them but few are like get register as business owner or salaried person (if hired by a foreign company). Another is to submit Withholding tax returns on quarterly or monthly basis and few are more. I'll post them again later.

Why government added withholding tax term:

Actually freelancers are of 2 types. First, those working as individual and doing all work alone. Second, those who are getting work as an individual but hired a team of freelancers locally and paying them a salary for getting their work done (like running a small company being individual freelancer). So government wants them to be honest and deduct the tax from the salary they are giving to their hired freelancers and submit it to government.

Let’s say if we are giving less salary that doesn't fall under tax, we don’t have to deduct tax and submit only nil withholding tax return. Simple!

On the other hand foreign remittance 5 million a year is also tax exempted. If a freelancer is earning 5 million rupee or less annually and they don't want to involve themselves in this all setup. They can simply show their income as remittance sent by any friend or relative in their FBR return and can still enjoy tax exemption but of course  securing PRCs from bank is safe side if FBR asks anything.

[tlha-ashrf]

After reading some of the clauses, especially the ones mentioned by Zahra F, it looks like there are no taxes on IT Export till the 30th day of June 2025. This 2nd Tax Amendment was published on the 22nd March of 2021.

The Secretary of Information Technology of Pakistan, Mr. Shoib Siddiqui said:

> It is my appeal to the IT industry to keep calm as there is no need to worry. The IT industry and its growth is dear to the government. Continue your business with ease, and keep contributing revenue to the country. The rebates and reliefs granted to the IT sector will remain and will be continued even after 2025.

Watch his interview https://www.techjuice.pk/it-secretary-says-there-is-nothing-to-worry-about-as-fbr-targets-freelancer...

Here is my understanding of the clauses mentioned in the Tax Laws (Second Amendment) Ordinance, 2021:

> If 80% of your income is coming into the country as remittance under IT export services, then 100% of the tax payable is credited (returned back into your account?).

About "returned back into your account?" Logically, it would never leave your bank because when you file taxes, you just enter the numbers. If you're a filer then you must declare your foreign income as 100% remittances. But you MUST pay taxes (accordingly) on the income that you earn from within the country.

Please correct me if you think my understanding is wrong. I hope this will help all of us relax a bit. 🙂

[khan88388]

Brother wording are not important.
As ordinance makes rules which are very different and difficult. As sale tax statements and with holding tax statements are now attached with our income. If they need tax we will pay tax. But humans interaction with FBR officials is very difficult experience and ground reality is that FBR officials are not familiar to freelancing.

[tlha-ashrf]

Are you saying that the legal document published by FBR holds no value?

[khan88388]

We need to worry now. IMF says

[8cc9fa9a]

I have not been posting alot, the reason is there is no clarity as such. I highly recommend people to verify information before putting on this forum.

I have been consulting few Tax consultants but what I got uptil now is:

(this is strictly for free lancers who only deals with foreign clients, no local work whatsoever)

1. File Returns.You need to submit returns. (no issues here) but see point 4.

2. SALES TAX.Its un-clear whether free lancer needs to register for sales tax. Some says NO some says YES. I called FBR helpline, they says YES you need to register and submit zero every month. I highly appreciate that few other people should call helpline and ask for expert and ask the same questions. I bet some of us will get different answer.

3. WITHHOLDING. It is pretty much a done deal that any type of witholding tax needs to be submitted. There is no contention about it. The worrysome thing is, If you buy a Laptop of say PKR 70,000, you need to withheld the Tax from the supplier. But the reality is you can't. I asked the same question from the FBR helpline that supplier won't give us the laptop or any other thing if we try to witheheld tax. The FBR answer is, in that case pay the withholding tax yourself (for the supplier). I am not joking, this is the same answer I got from the Tax consultants and from the seminar I posted earlier.  So either we don't show our expenditure and if we do, need to pay the tax for the supplier.

4. TAX CALULATION. 100% TAX credit means that our tax will be calculated. Clear up your mind, this is not exemption. There is no calculation of tax in exemption. To avail Tax credit, you need to tell that person A earned PKR XXXX and PKR YYYY of tax is needed to pay by person A. Can someone help us find the rate at which freelancer/company is taxed for Software export? This rate is so hidden that not even Tax consultant knows. Due to exemptions this was never needed. Some says its 1% only, but I am not sure. This rate or secret number can be very important to calm out nerves. Call the helplines and confirm your answers please

I hope we will keep on topic and try to find answer to the questions above

[matty82]

Sales Tax= Services do not fall in FBR Sales tax regime, Services are Provincial tax matter. So where to register for sales tax?

Withholding Tax=  What if we do not pay salary and do not purchase anything?

So these are just to trap freelancers, Big companies who sale locally and have employees are already doing this and they also have tax consultants etc so the problem is with freelancers.

Credit Credit Field will be avaialble and we'll be putting some amount there which we caculate as the tax payable.

Now how to calculate the amount is the big question. Some say Export come under Fanal Tax regime u/s 153 and WE only need ot calculate 1% tax and some says We need to put it in as business income where you will be showing up to 35% of taxable income.

[hussain114]

Is it true that PK Govt. added a new 1% WHT for Filers on all commercial incoming remittances starting July 2021?

I've already noticed it happened to me. PRC clearly shows 1% WHT on the total amount charged.

Did anyone else noticed it?

[farrukh_abdur]

Yes, 1-2% has been imposed on each transaction. It seems this is indeed the situation from now onwards. Strangely, this was never mentioned before but has been implemented immediately.

https://propakistani.pk/2021/07/08/exclusive-fbr-is-deducting-1-2-tax-on-it-related-exports/

[hussain114]

Absolutely disappointing

[matty82]

See attached

[farrukh_abdur]

Thanks for sharing the tax amendment document Ghulam.

So as per the document, now an Exemption certificate is required and needs to be submitted to the bank to remove the 1% tax deduction from transactions. Valid for 6 months duration it is mentioned.

At this time, the online system to apply for the certificate is not available. When it becomes available then the application can be submitted and it will be reviewed by the commissioner.

The tax credit regime for freelancers is a separate thing from the exemption certificate. Withholding tax statements are not needed if not applicable.

[hussain114]

I mean it is just utterly pathetic that they started charging the tax BUT they have NO SYSTEM IN PLACE YET to issue a certificate to avoid that tax.

Does anyone know:

How soon the system will be available?

How to get the tax back that's already charge?

[matty82]

We need to gather information and share here what an indivdual IT exporter who is working as a freelancer need to do to get the tax credit. earlier we only put the earning in exempted column and now the no one knwo what to do. We all need to call FBR to ge the information about how to meet the condition of withholding and sales tax returns.

[khan88388]

They don't give us job. And now putting us in extreme useless tax credit schemes. Tax credit means you have to pay monthly sales tax and witholding tax. And at the end of the year FBR will decide either our income is tax free or not... All in confusion

[khan88388]

Yes PRC is Important
You can get PRc easyl from JazzCash or Faisal bank

[khan88388]

PCR is actually the proof that you have received payment from international clients.... And your book of documents. Now laws are going strong be filer and make proper prc

[asimali619]

I recieve payments using payoneer directly from client, The PRC shows home remittance. What will be the proper way for me. Am I subjected to tax ?

[sqaprofessional]

Hi,

Thank you all for this wonderful discussion.

I am facing an issue where my Income Tax filler status is Active but still my bank (UBL) is deducting 2% WHT on my escrow payment? Thanks in advance. 

[israrahmed178]

Question: Incorrect Remittances purpose code. I am Mobile Application developer on upwork:  

I am receiving my earning from upwork to local bank transfer and getting paid. When I received my money and applied for PRC(Proceed Realisation Certificate) from my bank , on this certificate purpose code is 9249 instead of 9186.

9249 code mean: Remittances received by resident individuals/households from overseas reputed online platforms, firms and individuals on account of free-lance services other than computer and information systems services

9186 code mean: Remittances received by resident individuals/households from reputed overseas IT firms and online platforms on account of free-lance of computer and information systems services. I am providing computer related freelance services but upwork sending payment with purpose code I am doing freelance other than computer related services.

[mchughtai]

did you get any solution for this?

[nasirweb]

Have you submitted PRC document? because today i also receive  PRC and PRC purpose code are 9249 😞

[s_fax]

Is sales tax filling necessary now and do we need to charge provencial sales tax to our clients on Upwork as tax excemption till 2025 clause has been ommited in this budget from Section 65f and 154A. Do we need to charge sales tax this year on Upwork?
Both these sections have 4 requiremnts
1) registration from PSEB (required)
2) sales tax is filed (if required)
3) withholding statement (if required)
4 Return is filed (required)

[perpetual89]

Hello!

Just checking if there are any new updates as to Tax Exempt for freelancers or do we still have to pay taxes according to the tax slabs set by the government for every other person?

[ArjayM]

Hi Sydel,

If you have questions about your local tax exemption, you will need to consult a tax advisor in your country or contact your local tax authority. Feel free to check this Announcement for Non-US taxpayer information reporting updates.

[umair-ikram]

Hello,

Could someone please shed some light on the Wise Payment Method. I am withdrwaing my Payments through wise. How should i submit my returns and show my earnings as a freelancer and get the Tax Exemption Benefits. Thanks

[1d4a77cc]

• T services in Pakistan are currently 100% exempt from tax until 2025.
• According to your tax consultant, income from IT services is fully taxable in Pakistan unless you acquire membership from the Pakistan Software Export Board (PSEB).
• However, PSEB does not offer membership to individual freelancers. Instead, freelancers can form a sole proprietorship company and acquire PSEB membership through that.
• To avail the tax exemption, you would need to open a new business bank account and report all earnings to PSEB using Form-R and supporting documents.
• It is advisable to consult with fellow Pakistani freelancers who may have firsthand experience with this process.
• As per tax or stock calculation, we can explore from here. https://stockaveragecalculator.org/

[f046c426]

Hello Everyone,

I provide ITeS to my client base in the US. I started freelancing in 2020 and after one year got learned that I’ll need to register myself as a freelancer with PSEB and need PRC for every transaction I did all that homework and I have every single PRC with myself for the last 3 years and those payments are landing into my personal bank account directly using different mediums like Payoneer, Remitly, world remit, etc.

Many of my clients come from different freelancing platforms + they are direct customers + referrals, etc…

Today I contacted PSEB before applying for renewal of my license and got to know that the purpose code on PRCs is 9471 which is home Remittance and they said IT services fall under 9186, therefore I need to submit them some undertaking that I was not aware of these codes. Then my branch manager helped me out and he found a guy within the bank in another branch who handles the trade that guy told me to register myself as a sole proprietor and have a new business bank account and then when any direct payment will be coming to the bank (A wire Transfer) I will have to intimate them submit form R and provide agreement + invoice etc…

I just want to know if he guided me right??? And then what about Payoneer do I need to open up a new Payoneer company account and will that company account on Payoneer will help me to have the right purpose code on the PRCs??

Has anyone been in this situation before?

Please let me know how should I receive payments that fall under the 9184 to 9186 purpose code.