Pakistan’s government claims freelancers brought in $779 million in 2025, representing a 90% increase from $408 million in 2024 and accounting for 20% of the country’s $3.8 billion in IT exports, however industry insiders question whether these figures reflect genuine freelancing growth or systematic tax evasion through employee misclassification.
The practice centers on Pakistan’s favorable tax structure for IT exports, which creates massive tax differentials between freelancers and regular employees. Freelancers registered with the Pakistan Software Export Board pay just 0.25% tax on export earnings, while non-registered freelancers pay 1%. In stark contrast, regular employees face income tax rates ranging from 25% on income between Rs 2.2 million and Rs 3.2 million, 30% on income between Rs 3.2 million and Rs 4.1 million, and 35% on income exceeding Rs 4.1 million.
Industry and media sources reveal that the Pakistan Software Export Board has allegedly been incorrectly classifying remote workers as freelancers even though they function as full-time employees, despite Federal Board of Revenue tax law explicitly stating that remote workers’ income is not tax-exempt. This misclassification allows companies to pay foreign rates directly to workers labeled as freelancers while avoiding the tax burden associated with traditional employment, resulting in compensation approximately three times higher than local employees receive when accounting for the tax exemption.
The misclassification practice damages Pakistan’s legitimate IT export sector, as companies following proper employment classification cannot match the compensation packages offered to workers misclassified as freelancers. Industry observers note the contradiction between government statistics and ground realities, with official figures showing explosive freelancing growth while the actual freelancing ecosystem shows no corresponding infrastructure development or support systems that would typically accompany such dramatic expansion.
The IT export tax exemption, currently valid until June 30, 2025, requires that at least 80% of export proceeds be remitted into Pakistan through normal banking channels.
As this deadline approaches, the government faces pressure to address classification issues while maintaining incentives that genuinely support Pakistan’s IT sector growth without enabling systematic tax evasion that distorts market competition and inflates export statistics.
