KARACHI
The Pakistan Software Houses Association (P@SHA) has called for a clear distinction between genuine project-based freelancers and full-time remote employees working for foreign companies in its proposals for the Federal Budget 2026–27. The association warned that the lack of proper differentiation is causing serious distortions in the taxation of the digital economy.
P@SHA highlighted growing reports of misuse of the freelancer tax framework. Many IT companies are allegedly exploiting the system—originally designed for independent gig workers—through “tax arbitrage” to lower their tax obligations. This practice is artificially inflating freelance export figures and creating an uneven playing field, ultimately harming genuine freelancers by limiting their opportunities and benefits.
Despite various global and domestic challenges, Pakistan’s freelance earnings reportedly reached $950 million in the first ten months of the current fiscal year, seemingly surpassing major competitors like India, China, and the UAE.
According to P@SHA, this trend is undermining fiscal fairness and damaging the formal IT sector. The association reiterated its support for a supportive environment for authentic freelancers while giving priority to the sustainable growth of registered IT companies and the gradual formalization of the gig economy.
To ensure long-term stability, P@SHA has recommended extending the existing 0.25% final tax regime (FTR) for IT exporters and genuine freelancers for the next 10 years. The association stressed that policy continuity is crucial for attracting international clients, maintaining steady foreign exchange inflows, and strengthening registered technology firms.
A central recommendation is the formal classification of digital workers. Independent, project-based freelancers should continue to enjoy the simplified tax regime, while individuals working full-time for foreign employers on fixed salaries should be taxed under the standard progressive income tax slabs applicable to salaried persons.
Tufail Ahmed Khan, Honorary President of the Global Freelancers Union (GFU), endorsed P@SHA’s position, stating that authentic freelancers deserve to retain the 0.25% final tax benefit, whereas remote professionals on fixed salaries from overseas should be taxed appropriately as salaried employees.
This clear distinction aims to create a level playing field for local IT companies, which invest significantly in infrastructure, regulatory compliance, employee benefits, and training, but currently face unfair competition from unregistered remote work arrangements.
P@SHA Chairman Sajjad Syed emphasized that formalizing the tax treatment of full-time remote workers will help protect the domestic corporate sector, promote documentation of the economy, and encourage individual contributors to build structured, globally competitive IT businesses.
Additionally, P@SHA called for structural reforms including simplified banking procedures, smoother inward remittance systems, and easier tax filing processes. While acknowledging the important role freelancers play in youth employment and digital exports, the association believes the long-term objective should be to help them scale up into formal organizations.
The proposals also stress the need for substantial national investment in high-growth areas such as Artificial Intelligence, cloud computing, and cybersecurity.
Through equitable taxation policies and strategic investments, P@SHA aims to position Pakistan as a leading global hub for formal, high-value technology outsourcing and innovation.