Is the 0.25% charged on gross receipts or profit, and can I deduct platform fees, laptop and internet costs?

Freelancers often assume the tax on foreign earnings is charged on what they keep after costs. Under section 154A it is not. The rate applies to proceeds, and as long as the tax is final, the Ordinance does not let you subtract what you spent to earn them.

What is the tax charged on?

Section 154A(1) requires every authorised dealer in foreign exchange, when it realises foreign exchange proceeds for exported services, to “deduct tax from the proceeds” at the rates in Division IVA of Part III of the First Schedule. For tax year 2027, Division IVA reads:

Type of receipt	Rate
Export proceeds of computer software, IT services or IT enabled services by persons registered with the Pakistan Software Export Board (for tax years 2024 up to tax year 2029)	0.25% of proceeds
Any other case	1% of proceeds

Both rates are a percentage “of proceeds”. Nothing in section 154A or Division IVA refers to profit, net income or costs.

Platform fees. The Ordinance does not define “proceeds” for section 154A and does not mention fees that a foreign platform keeps before paying you. The text taxes what the bank realises. It does not say more about fees deducted abroad, and this page does not resolve that point.

Why can I not deduct expenses?

Section 154A(2) makes the tax a final tax on the income from these transactions once four conditions are met: a return has been filed, withholding statements have been filed if required, sales tax returns have been filed if required (not a condition for PSEB-registered exporters), and no credit is claimed for foreign taxes paid.

Section 169(1)(b) lists sub-section (2) of section 154A among the final-tax provisions. Section 169(2) then sets out what “final” means:

• (a) the income is not chargeable under any head of income in computing taxable income;
• (b) “no deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income”;
• (c) the income is not reduced by deductible allowances or by setting off a loss;
• (d) the tax is not reduced by any tax credit.

Section 168(3)(ea) adds that no tax credit is allowed for tax that is final under section 154A(2). So platform fees, internet bills, software subscriptions, a laptop or a co-working desk do not reduce the final tax.

When do expenses count?

Section 154A(3) says sub-section (2) does not apply to a person who does not fulfil the conditions “or who opts not to be subject to final taxation”, and the option is exercised every year when the return is filed.

The income is then computed under normal rules as business income. Section 20(1) allows a deduction for expenditure incurred in the year “wholly and exclusively for the purposes of business”. Section 20(2) says expenditure on a depreciable asset with a useful life of more than one year, such as a laptop, is depreciated or amortised rather than deducted in one go. Tax is worked out at the individual rates, and section 168(2) allows credit for the tax the bank deducted.

Worked example (illustrative figures)

Kamran, a content writer in Multan, is not PSEB-registered. In tax year 2027 his bank realises Rs. 3,000,000 of export proceeds. He spends Rs. 60,000 on internet and Rs. 240,000 on a co-working desk, and buys a laptop for Rs. 300,000.

Under final tax (section 154A(2) conditions met)

1. Tax: Rs. 3,000,000 x 1% = Rs. 30,000
2. Expenses allowed: none, under section 169(2)(b)
3. Final tax for this income: Rs. 30,000

If he opts out under section 154A(3)

1. Receipts: Rs. 3,000,000
2. Revenue expenses under section 20(1): Rs. 60,000 + Rs. 240,000 = Rs. 300,000
3. Taxable income before depreciation: Rs. 3,000,000 - Rs. 300,000 = Rs. 2,700,000 (laptop depreciation is left out here for simplicity)
4. Tax under paragraph (1) of Division I of Part I: Rs. 170,000 + 30% x (Rs. 2,700,000 - Rs. 1,600,000) = Rs. 170,000 + Rs. 330,000 = Rs. 500,000
5. Less credit for tax deducted by the bank: Rs. 500,000 - Rs. 30,000 = Rs. 470,000

In this illustration, deducting expenses does not reduce the tax below the final-tax figure, because the normal rates are much higher than 1% of receipts. The result depends on the actual figures.

What if …?

What if I am PSEB-registered? The rate is 0.25% of proceeds for tax years 2024 up to 2029 under Division IVA. The no-deduction rule in section 169(2) still applies while the tax is final.

What if I miss one of the section 154A(2) conditions? Section 154A(3) says sub-section (2) does not apply to a person who does not fulfil the conditions. The income is then taxed under normal rules.

Common mistakes

• Applying 0.25% or 1% to profit. Division IVA applies the rate to proceeds.
• Claiming a laptop or internet costs against final-taxed income. Section 169(2)(b) bars it.
• Assuming opting out always lowers tax. Under normal rules, the individual slab rates apply to net income, which can exceed the final tax, as the example shows.

What to check in the official text

Read section 154A in full, section 169(1)(b) and (2), section 168(2) and (3), and section 20. Check Division IVA of Part III and paragraph (1) of Division I of Part I of the First Schedule in the source PDF. Board rules on the mode and procedure of payment under section 154A(5) are not held in this corpus.