FBR Taxation on Freelancers Income in Pakistan

On Aug 8, 2023

FBR Taxation on Freelancers Income in Pakistan: Understanding the Laws

Freelancing, while offering flexibility and independence, also comes with the responsibility of understanding and adhering to local tax laws. In Pakistan, the Federal Board of Revenue (FBR) oversees taxation, and there are specific regulations that freelancers must be aware of.

1. Income Tax Ordinance, 2001

The primary law governing income tax in Pakistan is the Income Tax Ordinance, 2001. Under this ordinance:

All individuals earning above a certain threshold are liable to pay income tax.
Freelancers are considered as individuals running a business. Their income from freelancing is classified as ‘income from business.’
Tax rates vary based on income slabs. The more you earn, the higher the percentage of tax you might have to pay.

2. Tax Registration and NTN

Every taxpayer in Pakistan must have a National Tax Number (NTN). Freelancers can register for an NTN online through the FBR’s e-portal. This number is crucial for filing tax returns and other tax-related activities.

3. Double Taxation Agreements

Pakistan has Double Taxation Agreements with several countries. This means if you’re a freelancer receiving payment from a country with which Pakistan has such an agreement, you might be eligible for tax relief to ensure you’re not taxed twice on the same income.

4. Withholding Tax on Banking Transactions

Under Section 236P of the Income Tax Ordinance, 2001, banks are required to deduct withholding tax on non-cash banking transactions for non-filers. However, this amount can be adjusted against your final tax liability when filing returns.

5. Presumptive Tax Regime

Freelancers receiving foreign remittances can benefit from the Presumptive Tax Regime. Under this, the income is subject to a final tax, and freelancers are not required to pay any additional tax if their only source of income is foreign remittances.

6. Documentation and Record-Keeping

The Income Tax Rules, 2002 emphasize the importance of maintaining records. Freelancers should keep a record of all invoices, bank statements, and any tax deducted at source. This documentation is crucial when filing tax returns and in case of any disputes or inquiries from FBR.

7. Annual Tax Returns

All freelancers, regardless of their income, are advised to file their annual tax returns. This not only provides legal cover but also makes them eligible for various benefits, like reduced withholding tax rates.

Conclusion

Navigating the tax landscape as a freelancer in Pakistan requires an understanding of the laws and regulations set by FBR. While the process might seem daunting, being compliant ensures you avoid legal complications and can also offer financial benefits in the long run. For the most accurate and up-to-date advice, always consult with a tax expert or refer to the FBR’s official resources.