Question Tax Exemption for Pakistani Freelancers

[Syed Z N]

I will strogly recommend to hire a consultant for the very first time so that you have an idea how to proceed in coming years. IRIS is pretty easy for salaried person but complex for other stuff. Specailly for wealth statement.  

[Shahid M]

Hi,
Thank you so much for sharing the detailed information. Actually i was also looking for the same information but it’s pretty clear now.
I am filling return and mentioning the freelancer income for the first time, what i have actually searched out and extracted from community discussion, we shouldn’t go for the registration until unless return is not being audited and ITO doesn’t say to register for taking exemption.
However 30th is last date, so please keep the form updated to come on one page.
Further kindly inform in which section this income will be recorded, means in IRIs where we have to mention this income, in foreign remittance?

[Hussain A]

Well registration of sole proprietor is definitely not compulsory to get tax exemption on IT work but if someone can form a sole proprietor and setup a business bank account, then the freelance work they're doing will look much more authentic. And in case of audit a freelancer who had formed a sole proprietor will be in a better position to convince the authorities that all their income is tax exempted instead of a freelancer who is working as an individual. For example a sole proprietor income will be coming in a business account & the owner will provide relevant documents to the bank in order to receive the money, for example business invoice, Form-R & a few more documents as well. While for an individual person, this doesn't happen, so no documentation work is done in most cases.  

This is what I've realized so far is the main difference.

[Shahid M]

Hi,
Yes you are right, there is no issue to form a firm but if you are doing
any other job then it will be violation of code of conduct of pak employer.
Further to form a firm means you have to get it register with FBR for NTN n
etc.
If freelancers have no any other job then they can register the firm but
for already employed person its not possible.
Please keep posted.

[Syed Z N]

I mentioning this again here:

The easiest way to show your IT income from software export in case of your audit is the PRC (Proceed Realization certificate). 

PRC has code on it which tells under which circumstances the remittance came into your account. The code to get IT exemptions are: 

1 Hardware consultancy services.Receipts on account of computer hardware consultancy services
provided to non-residents. 9181
2 Software consultancy services. Receipt on account of data base services provided to non-residents
such as development, storage, and on-line time series. Also included are the data processing services provided to nonresidents. 9182
3 Maintenance & repairs of computers. Receipts on account of maintenance and repairs of computers and peripheral equipment abroad to non-residents.9183
4 Export of Computer Software. Receipts on account of export of computer software including design,
development, and programming of customized system 9184
5 Other computer services. Receipts on account of other computer services not specified
elsewhere

When you ask your bank for PRC, they will give you PRC without these codes and hence the problem for Audit. In my case, I asked bank to put in the correct code, they told me they only do it for Bussiness not individual. I am currently in small tussle with bank to provide me the PRC. So for this reason I will make sole business. just to have a peace of mind for future.

[Hussain A]

For PRCs:

What if the codes are not mentioned on the PRC?

These codes are defined by PSEB & in Income Tax Ordinance 2001, there is no such thing mentioned to register with PSEB or to use these codes.

PSEB codes only cover a few categories. There are a ton of fields in freelancer  & PSEB don't cover them all.

For example in which category code these freelancers would fall?

- Copywriter/Article Writer

- Virtual Assitant

- Video Editor

- Audio/Video Transcriber

etc.

Even graphics designers don't fall under any category, because 9184 talks about 'design' of the 'computer software' . It doesn't mention website design & other graphics design work at all.

So again, this is all really messed up & confusing.

Also brother how do you acquire PRCs from your bank? Also which bank you use?

[Syed Z N]

some info from PSEB

https://www.pseb.org.pk/pseb-programs-3/facilitation/exports-reporting 

[Hussain A]

Good point. I'll call FBR again next week & discuss this matter again, will keep posted here.

[Syed Z N]

Yes messed up is the right word. I am, like you, learning all these stuff for the first time. I am very dissappointed that even PSEB is not making any efforts to help out the free lance community.

There is NO requiremnt from FBR to :

1. Form a sole propriety company.

2. Have the relevant code on PRC

3. Registeration from PSEB

BUT when I contacted the local FBR office to find out about exemption and how to prove it, they said PSEB registration. Although the legal wing of FBR advice is quite clear but I doubt the local offices have any knowledge about it. If the case comes under Audit, I am not sure how the case will be dealt with. There is a youtube channel  TAx dosti

https://www.youtube.com/watch?v=FxSleLSB8pk 

This is 03 part series. I contatced this guy and asked him to give me info about my case. I paid him 5000 for advice, he said what I am doing is fine But he recommended to form a company to be more legit. I asked him whats the difference but I didn't get the clear answer. I am now having an idea that every thing is build up for business. Like PSEB registeration, PRC codes.  Everything would be very simple to prove if we have the PSEB and PRC. This all exercise is to deal with future audit. I also know there will be certain catch with forming a comapny. Sale tax etc.. No idea how we will deal with all that crap.

I have an account in Standard Chareterd Bank. 

[Hussain A]

Tax dosti guy charged 5,000 only for advice on the phone?? That's a lot for an unclear answer.

Please also let me know what exactly are you doing that he said is fine? I want to see if I'm doing the same & want to decide what route to take from there.

PSEB is mainly formed for people doing software 'EXPORT'. There is a HUGE difference in 'Export' and offering services online as a freelancer. But FBR treats PSEB like it's a BIG IT Organization that you can't work without, which makes no sense. It only proves illiteracy of FBR staff.

When a sole proprietor is formed, I think for every single remittance you've to provide Form-R to the bank, and if that's not done, then remittance won't be credited to your account. And then there are remittances that appear as normal atm funds transfer. I wonder how to provide Form-R for them & how to get PRC for them.

And acquiring PRCs is another pain. Did you ever acquired a PRC from your bank? if so, what was a process, did the branch manager provided it and how much time it took?

BTW, why would there be sales tax or any other tax after someone registers a sole-proprietor? Plus sales tax should be for small business like grocery stores etc. And I mean sole proprietor, PSEB, to get all these pieces in place eventually mean to get tax exemption, not to pay any taxes.