A Pakistani company deducted tax from my freelance invoice. What rate applies?

Many freelancers earn from foreign platforms and from local clients at the same time. The two streams are taxed under different sections. Money from abroad is realised by a bank and taxed under section 154A. Money paid by a Pakistani company for your services is taxed at source under section 153, at a different rate and with different consequences.

What does the law say?

Section 153(1)(b). Every “prescribed person” making a payment to a resident person “for the rendering of or providing of services” must deduct tax from the gross amount payable at the rate in Division III of Part III of the First Schedule. Clause (b) carries its own threshold: it does not apply “where payment is less than thirty thousand Rupees in aggregate, during a financial year”.

Who is a prescribed person. Section 153(7) lists them. For a freelancer the most relevant are the Federal Government, a company, an association of persons constituted by or under law, a non-profit organization, and an individual or association of persons with turnover of one hundred million rupees or more in any of the preceding tax years. A small shop or an ordinary individual client below that turnover is not on the list, so section 153 does not require them to deduct.

Why section 154A does not apply. Section 154A(1) is addressed to an authorised dealer in foreign exchange at the time it realises foreign exchange proceeds on account of exported services. A rupee payment from a Pakistani company is not export proceeds realised by a bank, so the local invoice is governed by section 153.

What rate applies in tax year 2027?

Paragraph (2) of Division III sets the rates for payments under section 153(1)(b). As amended to 30 June 2026, it reads:

Sub-paragraph	Services covered	Rate
(i)	A listed group including software development services, IT services and IT enabled services as defined in section 2, advertising (other than print or electronic media), courier, car rental and others	7% of the gross amount payable
(i), proviso	IT services and IT enabled services as defined in section 2	4%
(ii)	“independent professional services such as doctors, lawyers, architects, accountants, software engineers or developers, working independently”	15%
(iii)	Electronic and print media, advertising services	1.5%
(iv)	Terminal and port operating services, paid to companies	12%
(v)	Services not covered in (i) to (iv)	14%

Footnotes in the source text record that the Finance Act, 2026 raised the general sub-paragraph (i) rate from 6% to 7% and substituted the new sub-paragraphs (ii) to (v). The 4% proviso for IT services and IT enabled services dates from the Finance Act, 2023.

An Explanation under sub-paragraph (i) says its rates apply “only to a service provider whose services are subjected to withholding tax on gross receipts and the service provider has not agitated taxation of gross receipts before any court of law”.

What counts as IT and IT-enabled services. Section 2(30AD) lists IT services as including “software development, software maintenance, system integration, web design, web development, web hosting and network design”. Section 2(30AE) lists IT enabled services, including graphics design, data entry operations, accounting services, medical transcription and call centres. Both lists say “include but not limited to”.

Worked example (illustrative figures)

Ayesha, a web developer in Lahore, invoices a private limited company in Karachi Rs. 200,000 for building its website in tax year 2027. The company is a prescribed person and the payment is above the Rs. 30,000 threshold.

1. Gross amount payable: Rs. 200,000
2. If the company applies the 4% proviso for IT services: Rs. 200,000 x 4% = Rs. 8,000
3. Amount Ayesha receives: Rs. 200,000 - Rs. 8,000 = Rs. 192,000

If the company instead applies sub-paragraph (ii) at 15%, the deduction is Rs. 200,000 x 15% = Rs. 30,000 and Ayesha receives Rs. 170,000. Why that can happen is explained below.

What if …?

What if I am a software developer working on my own? Here the text is not clear. Sub-paragraph (i) and its proviso give 4% for IT services “as defined in section 2”, and section 2(30AD) names software development. Sub-paragraph (ii), inserted by the Finance Act, 2026, gives 15% for independent professional services by “software engineers or developers, working independently”. The Division does not say which one prevails when an individual developer supplies software development services. This page does not resolve that overlap. A Board clarification, if one exists, is not held in this corpus.

What if the client is an individual or a small business? If the client is not a prescribed person under section 153(7), section 153 does not require a deduction. Your income is still taxable and goes into your return under normal rules.

What if I am not on the active taxpayers’ list? Higher rates for persons not on the list are set in the Tenth Schedule, which this page does not cover. See the related page on the active taxpayers’ list.

What happens to the tax deducted?

Section 153(3) says the tax deductible under sub-section (1) “shall be minimum tax” on the income of a resident person. It is not in the section 169 final-tax list, so the payment is part of your taxable income in the return. Section 168(1)(b) treats the amount deducted as tax paid by you, and section 168(2) allows it as a credit against the tax due for the year in which it was deducted.

Common mistakes

• Expecting the 0.25% or 1% export rate on a local invoice. Division IVA rates apply only to foreign exchange proceeds under section 154A.
• Treating the local deduction as final. Section 153(3) calls it minimum tax, so the income is declared and computed in the return.
• Assuming every client must deduct. Only prescribed persons under section 153(7) are required to, and clause (b) excludes aggregate payments under Rs. 30,000 in a financial year.

What to check in the official text

Read section 153(1), (3) and (7), then paragraph (2) of Division III of Part III of the First Schedule in the source PDF, since the site text does not reproduce the table and its footnotes. Read section 2(30AD) and (30AE) for the service definitions. Sales tax on services charged by a province or under the Islamabad Capital Territory law is a separate tax and is not covered here.