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Taxes on Freelancers in Pakistan for Year 2021-2022

Not everyone is interested in working a 9 to 5-hour job. Some people like a little flexibility so they may engage in other activities, spend more time with their loved ones, or just escape a boring routine. For this reason, freelancers work from home, in hip coffee shops, or in coworking spaces. According to the income tax regulations, independent contractors must pay taxes on their earnings just like salaried employees or business owners.

The Pakistani government has announced that it will impose a 30% tax on the freelancing sector. It varies on some conditions if you are a freelancer employed by a local business and receives payment from Pakistani clients, you must pay taxes on your income just like any other individual. In that situation, you are qualified to pay tax on earnings of more than 600k, or at least $50,000 each month. Different tax rates are depending on how much money you make. Since foreign remittances are tax-exempt for at least the next three years, freelancers working for international clients don’t have to pay anything.

Additionally, you are exempt from paying tax if you offer your clients IT-related services.

This was announced by the previous Prime Minister Imran Khan. Here is a good article by

According to the Income Tax Act, the following expenses cannot be deducted from one’s income:

  • You paid income taxes.
  • Any interest, fee, or penalty for failing to pay taxes on time or paying them late
  • Payments provided to relatives may not be withheld in the following circumstances:
  • You have gotten products, services, or facilities.

The payment is either:

(a) not in line with the fair market value of the goods, facility, or service

(b) not a legitimate need of your profession

(c) when you incur that expense, you knew it was going to happen.

Payment has been made to a relative (spouse, or any lineal ascendant or descendant of you or your spouse) or to a person who has a substantial interest (20 percent or more in equity or profits) in your business. The sum of taxable income and taxes due. By utilizing all of the deductions allowed by Section 80, one can lower their tax obligation. In this way, Section 80C of the Income Tax Act encourages taxpayers to save for the future by providing tax relief on several expenses (by giving deductions on investments in financial products). Gross taxable income minus deductions equal net taxable income. By claiming a deduction for the amount invested or spent under this section, you can lower your taxable income by up to Rs. 1.5 lakh. You must pay income tax if you are under 60 years old and have a net taxable income of more than Rs. 2.5 lakh.

Keep in mind that these taxes are based on previous year budget and will be applicable for the fiscal year 2021 – 2022. This year’s budget is different and the tax credit regime has been removed imposing a small tax of 0.25% has been imposed for fiscal year 2022 – 2023. For more information about the taxes consult State Bank of Pakistan (SBP).

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