1. Tax Regimes by Income Source
Freelancers in Pakistan operate under two main regimes depending on client location:
| Income Source | Applicability | Tax Rate (Filer) | Tax Rate (Non‑Filer) |
|---|---|---|---|
| Export of services (foreign clients via Fiverr, Upwork, PayPal, Wise) | Export regime under Section 154A | 1% (gross) or 0.25% (if registered with PSEB) | N/A |
| Local services (clients within Pakistan) | Regular income tax slab and WHT | 1%–2% withholding depending on amount and filer statu. | 2%–4% withholding for non‑filers |
- Export income is taxed directly at source and cannot be reduced by expense deductions.
- Local income is taxable under income tax slabs, and withholding is applied on payments received via bank or courier.
2. Income Tax Slabs for Local Freelancers (FY 2025–26)
| Net Annual Income (PKR) | Tax Rate | Notes |
|---|---|---|
| Up to ₨ 600,000 | 0% | Tax-exempt |
| ₨ 600,001 – ₨ 1,200,000 | 15% | Standard rate applies |
| ₨ 1,200,001 – ₨ 1,600,000 | ₨ 90,000 + 20% on excess | Progressive slab |
| ₨ 1,600,001 – ₨ 3,200,000 | ₨ 170,000 + 30% | |
| ₨ 3,200,001 – ₨ 5,600,000 | ₨ 650,000 + 40% | |
| Above ₨ 5,600,000 | ₨ 1,610,000 + 45% | Highest slab |
This slab structure aligns closely with salaried income brackets in Tax Year 2026.
Example Scenarios: How Withholding Works
Scenario A – Local client pays ₨ 150,000 via bank transfer:
- Filer: Bank deducts 2% → ₨ 3,000
- Non-Filer: Deduction rises to 4% → ₨ 6,000
Scenario B – Designer exports services via Upwork, payment ₨ 300,000:
- Without PSEB registration: 1% final tax → ₨ 3,000
- With PSEB registration: Rate drops to 0.25% → ₨ 750, no deductions or expenses allowed.
Why This Matters: Key Implications for Freelancers
- Cashflow impact: WHT is deducted before you receive payment. Being a filer reduces this burden.
- Fewer deductions for export income: You’re taxed on gross receipts—no expense claims allowed.
- PSEB registration brings savings: Export freelancers reduce withholding from 1% to 0.25% with PSEB certification.
Compliance Checklist for 2025
- Register for FBR filer status and secure an NTN via FBR’s IRIS portal.
- Declare all income properly on IRIS and correctly categorize local vs. export earnings.
- Maintain records of invoices, bank statements, and digital receipts.
- Claim allowed deductions (internet, tools, travel, office rent) for local income. Export income allows no deductions.
- Register with PSEB (Pakistan Software Export Board) for reduced export tax rate and eligibility for IT incentives.
Strategic Tips for Freelancers
- Prioritize staying a filer. Being on the Active Taxpayer List avoids higher WHT.
- Set up digital invoicing for transparency and audit readiness.
- Make tax planning part of your business model: Know what counts as local vs. export income.
- Budget for WHT — don’t plan future expenses assuming full gross receipts.
- Consider forming a sole-proprietorship or startup registered under SECP to potentially access more exemptions.
Deadlines to Remember
- Tax year: July 1, 2024 – June 30, 2025 (FY 2025–26)
- Filing deadline: September 30, 2025 for individuals and freelancers.
- PSEB registration: Do before the first receiving export payment for lower rates.
Final Takeaway
Pakistan’s Finance Act 2025 underscores how taxation on freelancers—especially export vs. local income—is becoming more formalized. Here’s what’s most important:
- Export income faces low flat taxes (1% or 0.25%) but no deductions.
- Local income is subject to slabs and higher withholding—especially if you’re a non-filer.
- Early registration and PSEB certification make a measurable difference in take-home income.