ISLAMABAD: Pakistan’s freelancers are urging the government to extend a preferential tax regime for digital workers beyond its scheduled expiry, warning that higher taxes could undermine a sector expected to generate more than $1 billion in export earnings this fiscal year.
The appeal comes as Pakistan prepares to unveil its federal budget while seeking to expand both its tax base and information technology exports, a growing source of foreign exchange for the South Asian nation as it pursues reforms under a $7 billion International Monetary Fund (IMF) program.
Pakistan is home to an estimated 2.37 million freelancers, one of the world’s largest freelance workforces, according to industry representatives. Many earn income from overseas clients in fields ranging from software development and cybersecurity to digital marketing, content creation, automation and data analytics.
A key factor behind the sector’s growth, industry leaders say, has been a tax incentive designed to encourage freelancers to route payments through Pakistan’s formal banking system.
Under the current regime, freelancers registered with the Pakistan Software Export Board (PSEB), a government agency that promotes the country’s technology sector, pay a final tax of 0.25 percent on foreign earnings received through banks. Unregistered freelancers pay 1 percent. The concession is due to expire on June 30 unless renewed in the federal budget. Industry groups say the end of the regime could subject freelancers to a less favorable tax framework, though the government has not yet clarified what tax treatment would apply afterward
“The current regime, which is 0.25 percent ... should be continued for another 5 years at least,” Ibrahim Amin, chairman of the Pakistan Freelancers Association (PAFLA), told Arab News.
Amin said the association had formally approached the ministries of information technology and finance and other government stakeholders to seek an extension.
The push comes as documented freelancer earnings continue to rise sharply. According to PAFLA, officially recorded freelancer remittances increased from roughly $500 million-$600 million in fiscal year 2022-23 to about $750 million last year and are expected to exceed $1 billion this year.
“It is a tear hard, blood and sweat work of 8 years we have reached here,” Amin said, referring to efforts to persuade freelancers to receive payments through formal banking channels rather than informal networks.
Industry representatives say the tax incentive has helped build confidence among freelancers and encouraged them to document their earnings. They warn that removing the concession could reverse those gains.
“If they tax the freelancers, it will be all gone in the drain. They will not bring their dollars, their money through legal channels to Pakistan, through banking channels, which we have been giving them since last 8-9 years, the confidence that you will not be treated badly, you will not be taxed badly,” Amin said.
While Finance Minister Muhammad Aurangzeb’s office did not respond to requests for comment, Amin said representatives of the freelancer association recently met Information Technology Minister Shaza Fatima Khawaja, who sought to reassure the sector.
“She agreed and she assured us that there is no talk on taxing any freelancers anymore,” Amin said.
The debate has resonated with many young Pakistanis who increasingly rely on online work amid limited employment opportunities in the formal economy.
“There are no jobs in the country and when youths are earning through Internet ... this decision will severely affect the content creators,” said Mehreen Iftikhar, a Lahore-based YouTuber who supports her parents and siblings through income generated from her online content.
Despite rapid growth, industry leaders say Pakistan will struggle to achieve its goal of generating $5 billion in freelancer exports by 2030 unless longstanding structural challenges are addressed.
These include unreliable electricity supplies, patchy Internet connectivity outside major cities and the lack of seamless international payment platforms operating directly in Pakistan.
“There are no Pakistani payment platforms in Pakistan which can seamlessly bring this money to Pakistan,” Amin said. “There is another problem which is all over Pakistan, there is electricity problem and there is no Internet in second and third tier cities of Pakistan.”
“To achieve that dream we need to work tirelessly on a whole-of-Pakistan basis,” he added.
