How much tax is charged when I pay for foreign software or subscriptions with my Pakistani card, and can I adjust it?

Most freelancers pay for something abroad: a design tool, a cloud server, a domain, a stock image plan. When that payment goes through a Pakistani card, the Income Tax Ordinance adds a small advance tax on top. For tax year 2027 the rate is far lower than it was, and the tax counts toward your own liability rather than being lost.

What does the law say?

The charge. Section 236Y(1) requires every banking company to collect advance tax “at the time of transfer of any sum remitted outside Pakistan” on behalf of any person who has completed a credit card, debit card or prepaid card transaction with a person outside Pakistan. The rate is the one in Division XXVII of Part IV of the First Schedule.

The rate. Division XXVII says: “The rate of tax to be deducted under section 236Y shall be 0.5% of the gross amount remitted abroad.” Its footnotes record two changes. The Finance Act, 2023 substituted the expression “1%”, and the Finance Act, 2026 substituted “0.5%” for “5%”. The Finance Act, 2026 in this corpus contains the matching amendment: in Division XXVII, for “5%”, “0.5%” is substituted.

Adjustable, not final. Section 236Y(2) says: “The advance tax collected under this section shall be adjustable.” Section 168(1)(b) treats tax collected under Chapter XII, which is where section 236Y sits, as tax paid by the person from whom it was collected. Section 168(2) then allows a tax credit for it in computing the tax due on that person’s taxable income for the tax year in which it was collected.

How does it work in practice?

The tax is collected by your bank, not by the foreign seller. It is worked out on the gross amount remitted abroad for the card transaction, so a Rs. 10,000 subscription attracts Rs. 50 at 0.5%. The bank collects it at the time the sum is transferred abroad.

Because it is adjustable, the amount collected in a tax year is a credit when you file your return for that year. That works cleanly when you have tax due on taxable income, for example from a salary or from freelance income taxed under the normal rules after opting out of final tax.

There is a catch for freelancers on the final-tax route. When section 154A(2) makes the bank deduction on your export proceeds a final tax, section 169(2)(a) says that income “shall not be chargeable to tax under any head of income in computing the taxable income of the person”. Section 168(2) gives the credit against tax due on taxable income. If all your income is final-tax income, there may be little or no tax due on taxable income for the credit to be set against. This page does not go into whether, or how, the unused amount can be refunded.

Worked example (illustrative figures)

Bilal is a video editor in Faisalabad. In tax year 2027 he pays these foreign sellers with his Pakistani debit card:

Payment	Amount
Editing software, annual plan	Rs. 90,000
Stock footage subscription	Rs. 60,000
Cloud storage	Rs. 30,000
Total remitted abroad	Rs. 180,000

1. Rate under Division XXVII: 0.5%
2. Tax collected: Rs. 180,000 x 0.5% = Rs. 900
3. If Bilal is not on the active taxpayers’ list, rule 1 of the Tenth Schedule increases the rate by one hundred percent: 0.5% x 2 = 1%, so Rs. 180,000 x 1% = Rs. 1,800.
4. Before the Finance Act, 2026, the same payments at 5% would have meant Rs. 180,000 x 5% = Rs. 9,000.

When Bilal files his return for tax year 2027, the Rs. 900 is a credit against the tax due on his taxable income under section 168(2).

What if …?

What if I am not on the active taxpayers’ list? Rule 1 of the Tenth Schedule increases any deduction or collection rate by one hundred percent for a person not appearing in the active taxpayers’ list. Rule 10 lists the sections excluded from this, among them section 154A for export of services. Section 236Y is not in that list, so the text points to a rate of 1% for a person not on the list.

What if I pay through a foreign payment account rather than a Pakistani card? Section 236Y is about card transactions where a banking company transfers the sum abroad. The section does not mention foreign wallets or accounts held outside Pakistan, and this page does not extend it to them.

What if the purchase is a business expense? The tax collected is a credit, not an expense. Whether the subscription itself is deductible from freelance income depends on how your income is taxed. Under the final-tax route, section 169(2)(b) allows no deduction for expenditure incurred in deriving that income.

Common mistakes

• Quoting the 5% rate. That was the rate before the Finance Act, 2026. For tax year 2027, Division XXVII sets 0.5%.
• Treating the tax as lost. Section 236Y(2) makes it adjustable, and section 168 turns it into a credit in your return.
• Assuming the credit always produces a refund. The credit is set against tax due on taxable income. Final-tax income is outside taxable income under section 169(2).

What to check in the official text

Read section 236Y and Division XXVII of Part IV of the First Schedule in the source PDF, including both footnotes on the rate. Check sections 168 and 169 for how the credit interacts with final-tax income, and rules 1 and 10 of the Tenth Schedule if you are not on the active taxpayers’ list. How your bank shows the deduction on your statement is a banking matter and not covered in this corpus.