Taxes and Regulations for Freelancers in Pakistan: What You Should Know

Freelancing is fast gaining popularity in Pakistan, with many people viewing it as an attractive form of income.
However, freelancers in Pakistan must follow the country's tax requirements.

According to Pakistani rules, everyone with an annual income exceeding 400,000 PKR (about $2,500) must file taxes.
Freelancers must register with the Federal Board of Revenue (FBR), have a National Tax Number (NTN), and submit annual tax returns.

As a self-employed individual, dealing with tax time can be challenging due to the vast differences in tax systems and techniques across countries.

It's important to understand how to calculate your financial obligations, organize your finances, and obtain tax information.

How To Register for Tax as a Freelancer

Filing an income tax return in Pakistan is a hard and stressful process for someone who knows little or nothing about the taxation system.

Everybody must file the correct Income Tax Return to avoid legal issues. This post will explain in full how to file an Income Tax Return as a freelancer in Pakistan.

To begin with, make sure that all documents and information are readily available to you. To file an income tax declaration as a freelancer in Pakistan, you will need the following documents:

  1. National Identity Card (CNIC)
  2. Bank Account Statement for the Tax Year for which you intend to file an Income Tax Return
  3. Income and expenses incurred over the tax year
  4. Any Tax Credits or Deductions available to you under current law

The step-by-step process for filing a freelancer's income tax return in Pakistan is as follows:

Step # 01: Register for e-Filing

You will be instructed to register as a freelancer. Income returns must be filed online through the Federal Board of Revenue's E-Filing System.

You must register on the E-Filing System by creating an account and filling out the essential information. To register, input the following information:

  1. CNIC details
  2. Mobile number
  3. Email
  4. Address

Once you have completed the process correctly, you will receive your login, password, and pin via mobile and email. You will need to use these credentials to access the FBR's E-Filing System.

Step # 02: Calculate Your Taxable Income

After logging into the E-Filing System, you will be asked to file a Declaration. It is critical to select the appropriate Tax Year for which you want to file your return.

The next step is to calculate the total income earned in a tax year. Income derived is the money you earn as a freelancer during the year.

When determining your income, you can deduct business expenditures and other applicable deductions or tax credits. Rent, employee pay, and other office expenses are all allowable deductions from a freelancer's revenue.

Step # 03: Wealth Statement

You will also be needed to disclose personal expenses and assets acquired in your or your dependents' names. Personal expenses are not deductible when calculating taxable income because they are not the same as business expenses.

Once the details have been precisely entered, you must reconcile the expenses and assets spent from money earned throughout the tax year.

Step # 04: File Your Tax Return

Once you've finished the procedure, you'll need to file your income taxes.

Step # 05: Keep a Record of Your Tax Returns

The Federal Board of Revenue audits income tax declarations. As a result, it is critical to keep a record of your declaration and the papers you used to complete the tax return declaration, such as your Statement of Account, expense receipts, and other supporting documentation.

Every taxpayer has a responsibility to keep a record of the documents mentioned above for a minimum of six years.

The process of submitting income tax returns for freelancers in Pakistan may look confusing, but filing income tax returns is required to prevent the implementation of the best judgment assessment by the Federal Board of Revenue, as well as a penalty and punishment.

Read More: Top 07 Ways Freelancers Get International Payments in Pakistan

Understanding Tax Deduction for Freelancers

In Pakistan, freelancers must pay income taxes in the same way that other professionals do. They can, however, take advantage of several tax reductions that will reduce their total taxable income.

One of the most significant deductions is for home office expenditures, such as rent or mortgage payments, electricity bills, and internet fees.

Freelancers can also deduct depreciation on computer equipment and software used for business reasons. Another noteworthy tax deduction for freelancers is business-related travel expenditures acquired while working.

This covers flight, hotel, food, and transportation fees for attending professional conferences or meetings.

In addition to these deductions, Pakistani freelancers can claim expenditures for health insurance subscriptions and retirement plan contributions.

We recommend that you communicate with a tax expert or accountant who can assist you on how to best use available deductions based on your financial circumstances.

Disclaimer: This page is not designed to give authoritative tax advice, but rather as a pointer to the available resources on the subject. To establish your tax liability, consult with a tax adviser or other authorized expert.

Muhammad Faizan Anwar