JTech experts say much of the freelancers’ contribution to foreign remittances goes unnoticed due to the lukewarm recognition of freelance work as an industry that can accelerate economic mobilization.
According to World Bank data, the share of home remittances in Pakistan’s GDP is expected to peak in 2021. In 2020, personal remittances accounted for 9.9% of GDP, near the highest level by 10.2% in 1983. With an estimated 26% growth bringing remittances to $33 billion in 2021 – more than merchandise exports – the ratio of remittances to GDP would set another record.
“Although it is difficult to measure their exact share, freelancers – also called self-employed – who earn money abroad while working in Pakistan account for a significant portion of these inflows,” says Badar Khushnood, Chairman of the Pakistan Software Houses Association (PASHA). ).
“It’s a gray area,” Khushnood says over the phone from his office in Karachi.
The self-employed (individuals) have regular bank accounts; when receiving remittances from overseas for on-demand work, the inflows are identified as home remittances and a purpose code 9471 under the International Transaction Reporting System.
“If given due consideration, annual exports of freelancers could actually be 200% of the official estimate of $350 million,” Khushnood says.
Pakistan Software Export Board (PSEB) Spokesman Ali Abbas said State Bank of Pakistan (SBP) advised banks in 2018 to separately record foreign earnings of freelancers with different headers/codes .
Realizing the growth prospects of exports of computer services and information technology-enabled services (ITeS), the SBP has recently taken several measures to encourage the gig economy. Banks are encouraged to facilitate transfers of foreign funds for the self-employed.
A few months ago, the PSEB launched an online freelancer registration platform and the government is set to unveil the first national freelance facilitation policy, which provides tax and non-tax incentives for freelancers. enterprising domestic workers who are just as important as foreign workers in strengthening the external current account. “Access to bank loans, insurance and ease of payment abroad are promising benefits. The policy is expected to be implemented next year,” says Abbas.
“Freelancers need to line up,” he adds.
Abbas calls for the registration of independents as a separate entity. Many technology experts say this will only increase as coordination between the private and public sectors improves and stakeholders become more aware of the benefits.
The government estimates that there are 100,000 freelancers currently working in the country. Independent estimates of the number of knowledge workers providing translation, design, creative and other services abroad are as high as three million.
International Labor Organization report counts Pakistan among world’s top freelance labor providers.
With improved internet penetration, an individual, for example in Ghotki, Sindh, is now monetizing his skills in freelancers’ online marketplaces, digital job platforms, says Haroon Qamar, a technology entrepreneur .
“How the money is transferred or through which bank account is less of a concern actually,” says Qamar, who is also the senior vice president of the Pakistan Freelancers Association (PAFLA). “PAFLA has registered over 50,000 members in the last two months,” he says.
Khushnood says bank officials should be given guidance on how freelance transactions should be handled.
When an SBP spokesperson was recently contacted to ask if a freelancer could open a foreign currency bank account, withdraw and convert foreign currency when needed, the spokesperson cited a rule that freelancers should not could not withdraw foreign currency from their bank accounts. To use their earnings, they had to convert the full amount – the day it was wired – into rupees.
However, some banks allow freelancers to withdraw foreign currency from their bank accounts by check. Banks are incentivized to increase inflows of door-to-door remittances.
Until recently, IT and ITS exports were exempt from income tax.
However, now, “self-employed persons engaged in the export of IT services and IT services are eligible for a 100% tax credit under Section 65F, provided that 80% of export earnings are brought in in Pakistan through banking channels” if they file returns, wealth tax returns and sales tax returns, a PSEB spokesperson said.
Income from the export of computer software or IT and ITS is subject to a tax regime with a 1% tax on export earnings.
“Since the conditions for claiming the 100% tax credit and the FTR are the same with only one difference, that is to sayFTR does not require to bring 80% of export earnings to Pakistan, if an entity is engaged in the export of IT services and IT services and fulfills all the conditions prescribed under Section 65F but does not does not bring 80% of export earnings to Pakistan, then tax deductible under Section 154A would be the final tax on that person’s income from IT services and IT services,” says Abbas.
“A person subject to FTR under Section 154A may also opt for the normal tax regime. Such an option must be exercised annually when filing the return under Section 114 of the Income Tax Ordinance, 2001…persons receiving payment against the export of computer and computer services may need to obtain a certificate of exemption from the applicability of Section 154A and in the absence of such certificates of exemption, banks may deduct a tax of 1% from the proceeds of export.
Qamar says most people want to keep some of their income overseas due to uncertainty in the rupee-dollar exchange rate and a vague regulatory framework.
Khushnood, who is a former Google consultant in Pakistan, says a number of freelancers are still unregistered. “We are discussing with the Ministry of Commerce and IT to resolve the problems,” he adds.
A recent report by the International Labor Organization counts Pakistan among the world’s top suppliers of freelance labor along with India, Bangladesh, Philippines, Ukraine, UK and USA. .
The government of Pakistan can tap into a massive external revenue stream if it facilitates domestic labor on par with foreign workers and provides them with a level playing field.
The writer, freelance journalist, can be contacted at [email protected]