“When tax policy begins to target hypothetical income, it stops being taxation and starts becoming confiscation”.
The Federal Board of Revenue (FBR), through SRO 546(I)/2026 issued on April Fool’s Day (April 1, 2026), has proposed a taxation framework for social media creators that risks undermining one of Pakistan’s fastest-growing export sectors. The proposed rules attempt to tax content creators not on actual earnings, but on assumed income derived from views —an approach that is economically flawed, legally questionable, and administratively unworkable.
Under the proposed amendments in Income Tax Rules, 2002, FBR intends to calculate minimum income of social media creators using Revenue per Mille (RPM) multiplied by average views and number of posts. The draft rules fix RPM at Rs.195 per 1,000 views, irrespective of content type, audience location, or monetization status. This approach reflects a fundamental misunderstanding of how the digital economy operates.
Revenue from social media platforms varies widely depending on niche, geography, advertiser demand, and audience demographics. Technology and finance channels attract premium advertising rates. News and entertainment channels typically generate far lower revenue. Content watched in the United States or United Kingdom may generate ten times more income than identical content viewed in Pakistan.
A technology creator may earn US$5 per thousand views, while a news channel may earn only $0.20. Some creators may earn nothing at all because their channels are not monetized. Taxing these vastly different scenarios using a fixed rate is not taxation. It is speculation.
More troubling is the implication that even non-monetized creators may be taxed, as the formula prioritizes estimated revenue over actual income. This contradicts the foundational principle of income taxation: tax must be levied on real income, not hypothetical earnings.
The proposed rules also restrict expense deductions to a maximum of 30 percent. This is equally unrealistic. Content creation involves significant costs: equipment, editing, staff, research, travel, studio rent, and production expenses. For many creators, costs exceed 50 percent of revenue, particularly during growth phases. Artificially limiting expenses inflates taxable income and penalizes investment in quality content.
Constitutional concerns
The proposed rules also raise serious constitutional concerns. Article 77 of the Constitution mandates that no tax shall be levied except by or under the authority of law.
The Income Tax Ordinance, 2001 taxes actual income, not hypothetical income. By introducing artificial income through delegated legislation, the proposed rules appear to override statutory provisions.
Delegated rules cannot create new tax bases not contemplated in the parent law. Courts have consistently held that subordinate legislation cannot expand taxation powers beyond statutory authority. Fixing income based on assumed views effectively introduces a new tax mechanism without parliamentary approval. This makes the proposed framework vulnerable to constitutional challenge.
Ignoring Pakistan’s digital export economy
The proposed rules also ignore the scale and importance of Pakistan’s emerging digital export economy. According to State Bank of Pakistan, IT and IT-enabled services exports exceeded US$3.2 billion in fiscal year 2024-25, with freelancing and digital content contributing an increasingly significant share.
Industry estimates suggest that Pakistani YouTubers, TikTok creators, freelancers, and digital influencers collectively earn between US$500 million and US$1 billion annually, much of it from foreign advertisers and overseas audiences.
Pakistan currently ranks among the top global freelancing economies, with hundreds of thousands of young professionals earning from digital platforms.
Major Pakistani YouTube channels individually earn between USD 10,000 and USD 200,000 annually, while entertainment networks earn millions of dollars from global audiences.
Pakistani drama channels, for example, generate substantial revenue from the US, UK, Canada, and Gulf audiences where advertising rates are significantly higher. The same content viewed within Pakistan generates far lower revenue. These realities cannot be captured through an arbitrary fixed RPM.
Comparison with freelancers
The contrast with Pakistan’s taxation of freelancers is instructive. Freelancers earning export income benefit from reduced tax rates and simplified compliance frameworks to encourage digital exports.
The government has repeatedly emphasized promoting freelancing and digital entrepreneurship. Yet, the proposed rules move in the opposite direction for content creators—imposing hypothetical taxation, restricting expense deductions, and introducing complex compliance requirements.
Freelancers and content creators operate in the same digital ecosystem. Treating one sector favourably while penalizing another creates inconsistency and discourages growth.
Risk of offshore migration
The most serious consequence of these rules may be capital flight. Digital creators can easily relocate operations offshore:
Register companies abroad
Receive payments in foreign accounts
Route revenue through international platforms
Operate remotely without physical relocation
This is already happening. Many Pakistani freelancers:
Register companies in the UAE
Open international payment accounts
Operate through offshore entities
If even 30 percent of Pakistani digital creators move offshore, Pakistan could lose:
US$150-300 million annually in digital export inflows
Banking inflows and documentation benefits
Future tax revenue from a rapidly growing sector
Such policy-induced capital flight would undermine Pakistan’s digital economy at a critical stage.
Global practice
Internationally, no major jurisdiction taxes digital creators based on views. Countries tax actual income received from platforms, sponsorships, and advertising.
Some rely on withholding mechanisms or simplified regimes. None imposes hypothetical income models. Pakistan’s proposed framework risks becoming an outlier.
Administrative impracticality
Digital income is inherently volatile. Algorithm changes, seasonal variations, and audience shifts can drastically alter revenue. Quarterly advance tax based on estimated views would create compliance uncertainty and increase disputes. Rigid taxation frameworks are incompatible with the dynamic nature of the digital economy.
A better approach
FBR’s objective of documenting digital income is legitimate. However, the proposed mechanism risks discouraging compliance. A better approach would involve:
Taxing actual income received
Allowing full deduction of business expenses
Encouraging voluntary compliance
Developing platform-based withholding mechanisms
Pakistan’s future growth increasingly depends on digital exports. Social media creators represent a new generation of entrepreneurs contributing to export earnings, employment, and innovation.
Taxing views instead of income risks discouraging innovation, penalizing young creators, and undermining Pakistan’s digital transformation. Prudence demands reconsideration before these rules are finalised.
Copyright Business Recorder, 2026
The writer is a lawyer and author, is an Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Senior Visiting Fellow of Pakistan Institute of Development Economics (PIDE)
The writer, an Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws