Understanding How Taxation Works In Finance Act 2025

Freelancers & Taxation | Being a freelancer in Pakistan is exciting — you have flexibility, global reach, and the chance to be your own boss. But with that freedom comes responsibility: paying taxes correctly under the new rules of the Finance Act 2025.

If that sounds overwhelming, don’t worry! Let’s break it down in simple terms and explain what every freelancer, whether working for local clients or overseas platforms, needs to know — with real examples and practical guidance.

1. Two Tax Paths Based on Where Your Clients Are

Freelancers in Pakistan follow two tax regimes, depending on whether their clients are overseas or local:

1.1 Export Income (Foreign Clients via Fiverr, Upwork, PayPal, Wise)

• Tax Type: A flat withholding tax, collected at the time of payment.
• Rates for Tax Filers (Those on the Active Taxpayer List):
  • 1% of gross income.
  • 0.25% if you’re registered with PSEB (Pakistan Software Export Board).
• Important: This is a “final tax” — you can’t deduct expenses like internet bills or software costs.

1.2 Local Income (Clients in Pakistan)

• Tax Type: Regular income tax slabs, plus withholding tax (WHT).
• If You’re a Filer: 1%–2% WHT on payments, depending on the amount.
• If You’re a Non-Filer: WHT jumps to 2%–4%, making a big difference.
• Note: You can claim deductions (internet, rent, travel, etc.) under this regime.

2. Tax Slabs for Local Freelancers: FY 2025–26

Here’s how your net annual income in PKR is taxed:

These slabs are similar to those used for salaried individuals, making compliance straightforward if you file correctly.

3. Quick Examples: What You Actually Pay

Let’s break down what these taxes look like in real-life scenarios:

Scenario A: Local Project for PKR 150,000

• Filer: 2% WHT → 3,000 PKR taken at source
• Non-Filer: 4% WHT → 6,000 PKR taken at source

Scenario B: Upwork Gig Paying PKR 300,000

• No PSEB Registration: 1% → 3,000 PKR deducted
• With PSEB Registration: 0.25% → 750 PKR deducted

Being on the Active Taxpayer List and holding PSEB status can significantly increase your net earnings.

4. Why Knowing This Matters—Big-Time

Cash Flow Impact

For local clients, WHT is deducted before you get paid. Being a filer keeps the deduction lower, giving you more in hand.

No Expense Deductions on Export Income

Since export income is taxed on gross receipts, focusing on compliance rather than deductions keeps things simple.

Rewards for PSEB Registration

By getting PSEB-certified, you minimize your export tax while also unlocking government incentives.

5. Your Freelancer Tax Checklist for 2025

1. Register as a Tax Filer
   • Get your NTN via FBR IRIS portal and complete tax registration early.
2. File Income Correctly
   • Separate your local and export income in your reports.
3. Keep Accurate Records
   • Save invoices, bank receipts, and digital payments.
4. Claim Local Deductions
   • Deduct business-related costs (rent, internet, travel) from your local income.
5. Apply for PSEB Registration
   • It’s well worth the effort for the export tax relief.
6. Plan for Withholding Taxes
   • Understand that WHT applies on income — even before you receive it.
7. Consider Business Registration
   • A sole proprietorship or SECP-registered entity could give additional benefits.

6. Smart Tips to Stay Ahead

• Stay on the Active Taxpayer List: Lower withholding, easier banking, subsidies.
• Use Precise Tax Invoicing: Have clear invoices separating service type, charges, and tax withheld.
• Budget for Taxes: Don’t assume gross payment is your take-home pay—plan realistically.
• Consult Early: If you hit a higher income tier, talk to a tax expert before you’re surprised by liabilities.

7. Important Dates to Remember

• Fiscal Year: July 1, 2024 – June 30, 2025
• Tax Filing Deadline: September 30, 2025 (for individuals and freelancers)
• PSEB Registration: Must be completed before your first export payment to benefit from the lower rate

8. Wrap-Up: What You Absolutely Need to Know

• Export income is taxed up front (1% or 0.25% with PSEB) — no deductions.
• Local income follows standard slabs with WHT applied (lower for filers).
• Being a filer and having PSEB certification can dramatically reduce your tax burden.
• Documentation, compliance, and early action secure your right to keep more of what you earn.

Contact us today!