Freelance/Online work and Taxes

Not able to recall or find if this is discussed already some where on forums, if it is then please redirect me to related thead.

I was looking to know what you guys do about the taxes i.e. the ones that work only online / freelance and recieve payments from clients or even some company on project basis or monthly etc.

Working for local companies, the pay one gets is already one from which tax is paid i.e. company is paying each employee the pay after deducation of taxes and maintaining its tax stuff that way. And in many cases filling tax return for employees and getting them NTN numbers.

But if some one working as freelancer or other type of online-contract based work, need NTN or tax info for any xyz reason, how its done, mean what kind of tax rules apply to such payments, which are recieved this way i.e. freelancers are kind of bringing some revenue to the country so what our Tax Laws/FBR says about this and applying tax to such payments ?.

If any one know about this please share the related knowledge/info.

I'm not sure how the whole tax business works in Pakistan but I assume its more or less the same in every country. In Canada, every person who earns an income files tax returns every year (everything is online, is easy enough that people can do it themselves and they usually do!). Those tax return forms have to include information concerning your income from all sources (job salary, income from outside Canada, sale of property etc etc) and the taxes you have already paid (e.g. taxes deducted at source from your full time job salary). The total taxes you owed in that year are calculated and if you paid less tax than that amount, you owe the government the remainder which is paid via cheque or any other available payment option.

I would think if given the same process, you will have to contact whoever handles your tax returns (if its not you yourself) and have your income from outside of Pakistan stated in the relevant forms at the time of filing the return.

What you mentioning about income from all sources including outside Canada do make sense and probably its going to be same here. Well in my case it would be myself filing the returns as only source I have is from outside Pakistan , the reason I recall I have not looked into this before is some one telling me about (probably myth) tax exemption related to such payments, so was wondering how other guys who work freelance here manage it and have they heard some similar myth :)

^ Tax exemption may apply to certain cases or amounts, but in general all income from sources both inside and outside the country falls under the tax net in every country. Exemptions might apply in cases where e.g. you already paid taxes in a foreign country where the income was earned, so you won't be taxed again when bringing the remaining money into your home country.

You may want to make sure you sort this issue out quickly and not rely on any 'myths' since non-payment of applicable taxes is illegal. Of course knowing Pakistan, the tax collection agency may not be efficient enough to catch you, but do the country a favor and make sure you pay your dues! :)

ya already going through FBR ( Federal Board of Revenue) website :) , thats another thing they have broken links and some Internal server errors ...

Edit : did some googling and came acoress this link

http://www.pseb.org.pk/item/amendments#holiday

[quote=", post:, topic:"]

TAX HOLIDAY FOR EXPORT OF SOFTWARE

Government of Pakistan has given tax exemption on the income from export of computer software or IT Services or IT Enabled Services up to the period ending on 30th June, 2016. According to the Income Tax Ordinance, 2nd Schedule clause 133:

Income from export of computer software and its related services developed in Pakistan: Provided that the exemption under this clause shall not be available after the 30th day of June, 2016.

Explanation: - For the purpose of this clause

A- "IT Services" include software development, software maintenance, system integration, web design, web development, web hosting, and network design, and

B- "IT enabled Services" include inbound or outbound call center, medical transcription, remote monitoring, graphics design, accounting services, HR services, telemedicine centers, data entry operations [locally produced television programs and insurance claims processing]

[/quote]

But looks like this is only for companies and not individuals ?

The simple answer is that this is Pakistan and no one pays taxes!

Relax man, why to bother about this tax buiseness.

In this country only govt servants pay their taxes as it is deducted from their pay.

Every year they deduct almost 40000 from my pay as tax. When I compared it with the tax paid by some of our ministers, MNAs I came to know that they are paying less tax than me though they have all kinds of luxury vehicles and bangloes at posh places.

F...k the tax system and chill

I am a pakistani. I neither like tax nor like to talk about it.

[quote=", post:, topic:"]

Relax man, why to bother about this tax buiseness.

In this country only govt servants pay their taxes as it is deducted from their pay.

Every year they deduct almost 40000 from my pay as tax. When I compared it with the tax paid by some of our ministers, MNAs I came to know that they are paying less tax than me though they have all kinds of luxury vehicles and bangloes at posh places.

F…k the tax system and chill

[/quote]

My company deduct tax from my salary, 3500 per month approx :(

And have you ever calculated after deduction in tax from salary still how much tax you pay on the name of utility bills, eatables and toll tax?

edit:

Add one more PTV Jagga Tax.

[quote=", post:, topic:"]

Relax man, why to bother about this tax buiseness.

In this country only govt servants pay their taxes as it is deducted from their pay.

Every year they deduct almost 40000 from my pay as tax. When I compared it with the tax paid by some of our ministers, MNAs I came to know that they are paying less tax than me though they have all kinds of luxury vehicles and bangloes at posh places.

F…k the tax system and chill

[/quote]

Yes I know what you and others are saying and that how much indirect taxes we are already paying, and also remember when it came in media that Nawaz Sharif last anual tax return was 5000 , and we all know the rest…

I already have a NTN number from my last local office Job where the employer was deducting the tax , like any other offices, but I am no more ‘Active Tax Payer’ due to my recent job that is more of a freelance thing.

I have not initiated this from Moral prespective , that its good to give tax or not or what we get in return of our taxes that leaves any reason for paying it, lets keep this discussion aside , as this was not the reason for openning this thread.

Now coming to the reason, I was looking to know the ‘Official Rules’ as I need to fill some docs that require me to submit the tax document from either tax authority or my employer for my income, so I want to fill that according to what our offical ruels says, any one know the details of that PSEB link I pasted earlier or other details regarding this ?

Lets not go off-topic. Random pointless rants will not end well for the poster.

Mostly freelancing jobs are computer related and there is no tax on such income until 2016, read the Income Tax Ordinance for details.

freelancing = no taxes ... i never paid a tax

^ I think his question is more concerned with if you HAVE to pay tax on freelance income, rather than if you DO pay it! :)

Income from outside the country has to be self-declared since the government doesn't know the source and thus can't figure out how much tax is applicable. Legally, if you are found guilty of non-payment of taxes you can be audited which will result in you having to pay all the back taxes as well as any fines for the crime.

Have you tried contacting FBR?

http://www.fbr.gov.pk/ContactUs/HelpLine.asp

[quote=", post:, topic:"]

Have you tried contacting FBR?

http://www.fbr.gov.pk/ContactUs/HelpLine.asp

[/quote]

Not yet , but yes going through some docs available on fbr site to see if I can find exact info.

^ If you go to the tax return forms page: http://www.fbr.gov.pk/newdt/forms/IncomeTaxForms.asp

And then 'For Individual/AOP With Computational Help (Formulas/Calculations): http://www.fbr.gov.pk/newdt/ITReturnsForm2009/IT-2%20Return%20Excel%20Sheet%20WITH%20Formulas-----------.xls

The 'Total Income Computation' section has a 'Foreign Income' declaration field. I believe thats what you're looking for.

[quote=", post:, topic:"]

^ I think his question is more concerned with if you HAVE to pay tax on freelance income, rather than if you DO pay it! :)

Income from outside the country has to be self-declared since the government doesn’t know the source and thus can’t figure out how much tax is applicable. Legally, if you are found guilty of non-payment of taxes you can be audited which will result in you having to pay all the back taxes as well as any fines for the crime.

[/quote]

oh got it :) , actually i dont think state bank recognize freelance income as “income” its considered more as a foreign cash payment by overseas Pakistanis , i am saying this considering in mind that one is working as a freelancer and his / her income is coming from abroad .

USA is considering to apply tax on income rendered from offering service in USA , like example is turbosquid.com many Pakistani 3d modelers use this site to sell their 3d models to companies in USA now that site requested all its members to fillout w-8 form and submit to USA embassy to obtain some trading number etc … Elance.com is also in this category now , some other sites like odesk.com arent considering to implement this rule as they recently moved their financial structure to some offshore destination , in any case i dont think any Pakistani law can force freelancers to pay tax . as income earned by freelancers already raise the foreign reserves of country and help boost the economy :)

[quote=", post:, topic:"]

^ If you go to the tax return forms page: http://www.fbr.gov.pk/newdt/forms/IncomeTaxForms.asp

And then 'For Individual/AOP With Computational Help (Formulas/Calculations): http://www.fbr.gov.pk/newdt/ITReturnsForm2009/IT-2%20Return%20Excel%20Sheet%20WITH%20Formulas-----------.xls

The ‘Total Income Computation’ section has a ‘Foreign Income’ declaration field. I believe thats what you’re looking for.

[/quote]

Thanks , this do look like the related form for individual income.

I have gone through ‘Income Tax Ordinance 2001’[1] in which the cluase I pasted from PSEB site is from a 2003 Ammendent and then further amendment in 2006 which was the last amendment to related clause ‘133’ and the one on PSEB site is its latest form.

Going through other cluases covering foreign incomes , I can confirm (at least from my findings and confirmation from my to be Chartered Accountant spouse) that the Tax is exempted for foreign income (for computer software and services export) upto June, 2016.

The schedule two in Income Tax Ordinance 2001 says this at start :

[quote=", post:, topic:"]

THE SECOND SCHEDULE

EXEMPTIONS AND TAX CONCESSIONS

[see section 53]

PART I

EXEMPTIONS FROM TOTAL INCOME

Incomes, or classes of income, or persons or classes of persons,

enumerated below, shall be exempt from tax, subject to the conditions and to the

extent specified hereunder:

(133) [2]

[/quote]

[1] http://www.fbr.gov.pk/newdt/ITordinance/ITOrdinance2009/ITaxOrdinance2001ut28-10-2009.pdf ( Page 278 )

[2] http://www.pseb.org.pk/item/amendments#holiday ( the clause 133 is exactly same pasted on PSEB site )