P@SHA has asked the federal government to withdraw what it describes as a tax distortion benefiting Pakistani freelancers and remote workers earning foreign income, particularly those working through platforms like Upwork, Fiverr, and similar global clients.
The move has sparked strong criticism, as it is being seen less as a reform proposal and more as an attempt to align freelancers’ tax treatment with the heavily taxed salaried workforce in Pakistan’s local IT sector.
At the center of the debate is the 0.25% final tax rate on export earnings from IT services and remote work.
The 0.25% Final Tax Regime (FTR) for both companies and freelancers is set to expire on June 30, according to informed sources.
Sources say the International Monetary Fund (IMF) is pushing Pakistan to remove sector-specific tax concessions and bring all industries under a uniform tax structure.
With these adjustments expected to be reflected in the upcoming federal budget, officials indicate that further tax changes may come as a surprise for businesses and freelancers alike.
P@SHA argues that this structure is being misused by individuals who work full-time for foreign clients but register as freelancers to benefit from the lower rate, instead of being taxed under higher domestic salary slabs.
However, the criticism is that this framing ignores why the policy exists in the first place. The concessional tax rate was introduced to encourage foreign currency inflows and support Pakistan’s IT exports at a time when external earnings remain under pressure.
P@SHA’s proposal would effectively remove this advantage by classifying remote workers more strictly as “employees of foreign entities,” pushing them into higher tax brackets. The suggested structure includes new graduated rates ranging from 5% to 20%, depending on income and dependency on a single foreign client.
The concern raised by opponents of this approach is straightforward: instead of addressing the high tax burden and structural issues faced by salaried IT workers, the solution being proposed is to extend similar taxation pressure to freelancers who currently operate in a more flexible global ecosystem.
Pakistan’s IT and freelance sector has recently shown strong growth, with IT exports reaching around $3.8 billion in FY25 and freelancers contributing nearly $800 million in foreign inflows, with rapid year-on-year expansion. This makes the segment one of the most consistent sources of fresh dollar earnings for the economy.
The proposed reclassification would also introduce stricter definitions of employment versus independent contracting, which may not align with how global remote work actually functions, where long-term contracts and single-client relationships are common.
Critics argue that the real issue lies in the competitiveness of local IT firms, which struggle to match global compensation and working conditions, leading to continued talent migration toward remote and freelance work.
In this context, P@SHA’s proposal is being viewed as an attempt to correct a perceived tax imbalance by increasing pressure on freelancers, rather than addressing the underlying structural gaps in Pakistan’s domestic IT employment ecosystem.
