Pakistan freelancers face payment hurdles as PayPal absence limits growth

The absence of widely used global payment services — most notably PayPal — continues to limit options for Pakistani freelancers.

As a result, freelancers in Pakistan face greater transaction challenges, including fewer reliable payment channels, higher costs and reduced flexibility compared with their counterparts in many other countries.

International platforms such as Payoneer, Wise, Xoom and Skrill operate in Pakistan and can be linked to local bank accounts and mobile wallets, according to a report by the State Bank of Pakistan.

Freelancers have long faced uncertainty over the taxation of their earnings, as income from IT exports, freelance services and foreign remittances can be variably classified as export proceeds, business income or personal remittances.

This ambiguity has often led to double taxation, as tax authorities treated total foreign inflows — including unrelated transfers — as taxable income.

Despite supportive initiatives, Pakistan’s freelancing ecosystem continues to face structural constraints.

Major factors constraining the ecosystem include bottlenecks in payments, skills development, infrastructure, regulation, internet connectivity and taxation.

Moreover, only freelancers registered with the Pakistan Software Export Board are eligible for the concessional 0.25% export tax and a 100% tax credit on export earnings. Those outside the framework face uncertainty in tax filing, documentation and foreign exchange retention.

Beyond these factors, there is no formal and consistent mechanism for communication among stakeholders to identify challenges, address limitations and implement solutions at the local level.

Addressing these gaps could create a more integrated ecosystem that would help Pakistani freelancers transition into higher-value and specialized segments, enhancing income stability, boosting export earnings and contributing more substantially to sustainable economic growth, the SBP report said.

Freelancing, also known as the gig economy, has emerged as one of the fastest-growing segments of international trade in services, driven by platformization, remote work adoption and demand for cost-competitive digital skills.

The sector offers a rare convergence of employment generation, export diversification and financial inclusion.

It also absorbs educated youth outside the formal labor market.

The global freelancing market is expected to reach $2.5 trillion by 2030.

Freelancers are predominantly young, with around 60% under the age of 30.

Pakistan has positioned itself as one of the leading suppliers in the sector, generating $985 million in FY25, nearly triple the level recorded three years earlier.

Combined with broader IT and IT-enabled services, digital exports exceeded $3.8 billion in FY25, highlighting freelancing as a stable source of foreign exchange earnings.

According to a recent survey, a Pakistani freelancer earns around $5,000 annually.

While this estimate differs from official statistics, the gap may partly reflect structural factors such as the use of international payment platforms, varying levels of financial inclusion and the fact that only a small share of freelancers currently maintain accounts with local banks.

Together, these dynamics highlight a clear pathway for income growth: moving up the value chain into specialized, knowledge-intensive freelancing segments, where stronger formal integration with financial systems and higher value creation tend to reinforce each other.

Initiatives to support freelancers’ earnings

Initiatives by various stakeholders, including the integration of global payment gateways with domestic financial institutions, have supported growth in freelancing proceeds.

For instance, Habib Bank Ltd. introduced the Freelancer Digital Current Account to address payment issues faced by freelancers. Meanwhile, SadaPay enabled Apple Pay and Google Pay payments for freelancers through the launch of SadaBiz accounts in October 2023.

Empirical evidence suggests that remittance inflows are sensitive to both cost and time.

Lower transaction costs are associated with higher inflows through formal channels.

The government and the SBP have introduced various incentives through the Pakistan Remittance Initiative and other regulatory measures to encourage inflows through formal channels.

These incentives included schemes aimed at reducing transaction costs and improving efficiency.

The scheme significantly increased inflows but required substantial fiscal space. For instance, 65 billion Pakistani rupees was allocated for the scheme in FY25.

While these schemes helped attract remittance inflows through formal channels by reducing transaction costs, they did not address the structural issues that contribute to higher costs in key remittance corridors.

For example, Pakistan’s largest remittance inflows originate from Saudi Arabia, where transaction costs are also the highest.

Major reasons for the higher costs include limited competition, regulatory requirements, operational and settlement costs, and fragmented payment infrastructure.

To address these issues, the SBP and the Arab Monetary Fund launched the Raast-Buna integration project.

Raast is Pakistan’s instant payment system and serves as the core of the country’s digital payments ecosystem, enabling faster, secure and low-cost transactions.

Buna is a cross-border payment system established by the Arab Monetary Fund in 2020 to facilitate efficient remittances across the Arab region.

The Raast-Buna integration specifically targets remittances from the Arab region to Pakistan and aims to improve efficiency and lower transaction costs by strengthening the payment structure.

The project aims to reduce remittance costs to 3.2%, close to the United Nations Sustainable Development Goal target of 3%.

According to the report, a reduction of around 1.5 percentage points could increase remittances from Saudi Arabia alone by between $500 million and $3 billion when accounting for both price and volume effects.

The SBP said the Raast-Buna integration provides a more sustainable path to expanding formal remittance inflows at lower transaction costs and with greater efficiency by addressing structural issues rather than compensating for them through fiscal subsidies.