Question Tax Exemption for Pakistani Freelancers

[Shahid M]

Hi,
Is there anyone who filed the return and mentioned his freelancer income in
the return and FBR get him audited?
I believe there wouldn’t be anyone, so i advise please don’t get confuse
yourself,if anyone is audited then he should simply provide Upwork income
proof n it will be enough. They will definitely be agreed with your
statement and proof. So again, please don’t go for registration if you
don’t have a proper company otherwise there must be alot of other issues
regarding your current employer, if employed.

[Hussain A]

I file my returns as Upwork freelancer. Well FBR don't audit everyone, they pick random people for audit, I believe through a computerized audit.

I agree & I really want to avoid Sole Proprietor & registration with PSEB. Proof can be provided but I wonder if FBR lower staff asks you to provide PRCs & other stuff.

I'll check one more time with FBR next week to be sure.

[Shahid M]

Yes you are right and we also know that not everyone is audited, that was reason i said no need to go for registration.
If they audit, then we will be in a better position to argument with them and no need to worry because they listened you properly and also advise if require some additional. Earlier, i have been passed from this process and remained successful to proof my claimed with FBR.

But it is appreciated if you are taking clarity over it. Please keep us posted if you talk to them.

Further can you inform in which section of IRIS you have mentioned your Upwork income because this is my first year with Upwork income. Please guide.

[Syed Z N]

5000 for advice and forming a company which I didn't go for at that time because I thought what I am doing is correct than why should I. Also I guess that no one knows what to do for sure, hence everything is unclear. Somebody told me to get PASHA membership also.

I acquired PRC from bank but with irrrelevant code and yes I provided R-form for all my incoming remmittances without the bank asking for it. I asked bank to issue the correct code for my remittances and hence all the drama that these codes are strictly for business not for individual becuase my account is salaried account and remittances are business or something like it. Just to make it clear the PRC is generated on behalf of state bank. So often bankers give you reciept of transaction and call that PRC. Always remeber PRC has the purpose code on it. The application to Bank manager was required and it took 1 week to get it with wrong codes and its now over one month and I didn't get anything back after correction.

There is no sales tax if services are provided to overseas customer, but sales tax is on everything not only groceries. By law, everyone who is providing any type of services need to register for sales tax. This is another very vast topic that I don't have much knowledge about. So to answer your question, There is exemption on Income tax for free lancer BUT still we file our returns, similarly, so there is no sales tax if services are provided to overseas customers BUT still we need to file sales tax returns. 

[Shahid M]

Just for update!
I have called today in the afternoon to FBR income tax legal department and lucky was attended and connected with legal team. Frankly they don’t know about the treatment of individuals’ freelancers income and giving only one reply that to get register for exemption and when it is asked to them that we are individuals and individual registration is not available then they reply, ok don’t register and if you are audited then put your proof of income. When i asked again that it is still not cleared then they said we are putting it in our website in Q&A.
Further they said no need to worry if you have a valid proof with you.
Any other called today?
Please keep posted.

[Hussain A]

Ok so we're 'Back to square one'. Looks like FBR is really unsure about things, just like the rest of us.

BTW to answer your question, all foreign income, including Upwork income goes in same category while submitting tax returns. Your tax consultant will know how to file it.

[Shahid M]

Well I haven’t consulted anyone for filling my return and this is first time with freelancer income, so i just want to confirm where (tax section) have you mentioned this income?

[Hussain A]

Ok thanks for the details. Did they provided you 1 PRC for multiple remittances? Did the PRC had any remittance details, like amount in USD or PKR, dates, sender etc.? Will it be possible for you to share the format of PRC how it looks? Also I wonder what to do if someone needs PRC for last few years!

What code they entered on your PRC and what code you wanted it to have?

Also please confirm how do you know it's important to have purpose codes on PRC? I mean to ask aren't codes only for businesses registered with PSEB? Why would individual freelancers have the codes anyways since they're not registered with PSEB?

If your bank doesn't ask for Form-R, how do you provide them? I mean when they ask for it, it's when they're holding a remittance & they get a request from headoffice to branch to ask the account holder to provide Form-R. Branch then acquires Form-R from account holder & sends it to headoffice, then they credit the remittance to the account, so that way Form-R remains in the record of the bank & they report this to SBP. But if they're not asking you for it and they're crediting remittances without it, I wonder why you're still giving them? And more importantly, how the branch is keeping it in their record bcoz I don't think they'll be sending it to headoffice, hence it's not being reported to SBP.

As for sales tax, agreed. My friend's tax consultant also told me same thing yesterday, but he also asked me to avoid forming sole proprietor & continue as individual to keep things simple. I actually agree with him.  Pakistan is like in top 5 countries with highest number of freelancers & how many freelancers are actually registered as sole proprietor or with PSEB? Maybe 1% or so. Specially when income tax ordinance is clear about it, and have no mention of such thing. I'm almost certain that I'll not take this route to form sole proprietor or PSEB registration. Tax consultants (of course also almost as confused as we are) can just recommend to form a sole proprietor to be on the safe side and so they can make some money and of course they get a permanent customer out of it, but of course forming a sole proprietor comes with some further formalities & protocol.

[Shahid M]

As you said you have filed the return, then please can you show the treatment of freelancer’s income in tax return?

[Hussain A]

Bro I hired a tax consultant to file my returns. I didn't do it myself. I paid 3k for it. It's not super complex though, you can learn from a tax consultant how to do it while he files your returns.