What is the difference between section 154 and section 154A for freelancers receiving foreign payments?

The two sections sit next to each other and both tax foreign earnings at the bank, which is why they are often mixed up. The dividing line is simple: section 154 is about goods, section 154A is about services. They also differ in rate and in whether the tax is final.

What does the law say?

Section 154: exports of goods. Section 154(1) requires every authorised dealer in foreign exchange, when it realises foreign exchange proceeds “on account of the export of goods” by an exporter, to deduct tax at the rate in Division IV of Part III of the First Schedule. The section goes on to cover sales of goods to exporters under inland back-to-back letters of credit (sub-section (3)), exports by units in Export Processing Zones (3A), payments by direct exporters to indirect exporters (3B), and collection by the Collector of Customs when exported goods are cleared (3C). Section 154(4) says the tax is a “minimum” tax on the income from these transactions. A footnote records that the word “final” was replaced by “minimum” by the Finance Act, 2024.

Section 154A: exports of services. Section 154A(1) requires the authorised dealer to deduct tax from foreign exchange proceeds on account of, among others, exports of software, IT services or IT-enabled services by PSEB-registered exporters (clause (a)), services or technical services rendered outside Pakistan or exported from Pakistan (clause (b)), construction contracts executed abroad (clause (d)) and foreign commission of indenting agents (clause (da)). The rate is in Division IVA. Section 154A(2) makes the tax final on conditions.

How do the two compare?

Point	Section 154	Section 154A
What it covers	Export of goods and related transactions	Export of services, including software, IT and IT-enabled services
Rate schedule	Division IV of Part III, First Schedule	Division IVA of Part III, First Schedule
Rate for tax year 2027	1.25% of export proceeds	0.25% of proceeds (PSEB-registered IT exporters); 1% in any other case
Nature of the tax	Minimum tax (section 154(4))	Final tax if section 154A(2) conditions are met
Opt-out	Not applicable	Option each year under section 154A(3)

The 1.25% in Division IV was substituted for 1% by the Finance Act, 2026, according to the footnote in the source text.

Why “final” matters. Section 169(1)(b) lists sub-section (2) of section 154A among the final-tax provisions, and section 169(2) then keeps that income out of the taxable income computation entirely. A footnote to section 169 records that the reference to sub-section (4) of section 154 was omitted by the Finance Act, 2024. So goods-export tax is no longer in the final-tax list.

Worked example (illustrative figures)

Hamza runs a small sports goods workshop in Sialkot and also does freelance web development for a client in the UK. In tax year 2027:

Goods side (section 154):

1. Export proceeds realised for footballs: Rs. 10,000,000
2. Division IV rate: 1.25%
3. Tax deducted: Rs. 10,000,000 x 1.25% = Rs. 125,000, a minimum tax.

Services side (section 154A, not PSEB-registered):

1. Foreign proceeds for web development: Rs. 1,500,000
2. Division IVA rate, any other case: 1%
3. Tax deducted: Rs. 1,500,000 x 1% = Rs. 15,000, final if the section 154A(2) conditions are met.

The same person can be under both sections for different receipts. Each receipt is governed by what was exported.

What if …?

What if I sell digital products, like templates or stock images? The Ordinance does not use the words “digital products” in either section. Section 2(30AD) and (30AE) list examples of IT and IT-enabled services, and both lists say “include but not limited to”. Whether a particular digital sale is a service export under section 154A is not spelled out, so this page does not resolve it.

What if I sell goods through a foreign online store? That is an export of goods, and section 154 is the relevant section, not 154A.

Common mistakes

• Quoting the 1% goods-export rate. For tax year 2027, Division IV sets 1.25%, not 1%.
• Calling section 154 tax final. Since the Finance Act, 2024, section 154(4) says minimum.
• Applying the goods rules to freelance services. Service receipts from abroad are governed by section 154A and Division IVA.

What to check in the official text

Read section 154 in full with its footnotes, then section 154A. Compare Division IV and Division IVA of Part III of the First Schedule in the source PDF, since the site text does not reproduce the tables. Check section 169(1)(b) for the current list of final-tax provisions. Board notifications under section 154A(1)(e) and (6), which can include or exclude services, are not held in this corpus.