Govt working on budget proposals to facilitate corporate sector

ISLAMABAD: The government is finalising different proposals to facilitate corporate sector in budget 2025-26 including incentives for start-up investments and tax credits for investments in initial public offerings and equality mutual funds.

Sources told Business Recorder here on Tuesday that the Federal Board of Revenue (FBR) is seriously considering different budget proposals of the corporate regulator and other stakeholders for the next fiscal year. Most of the budget proposals are viable with negligible revenue impact on FBR’s tax collection during next fiscal year.

To incentivise start-up investment, encourage restructuring of underperforming companies, and promote locally domiciled funds, it is proposed that income earned by Private Equity and Venture Capital Funds should be exempt from income tax, provided the fund operates as a pass through vehicle and distributes at least 90% of its accounting income as cash dividends to investors.

Furthermore, the current 25% tax on dividends paid by such funds should be reduced to 15% to align with the standard dividend tax rate and ensure consistency in tax incentives across investment vehicles.

Sources said that the tax credit for investments in initial public offerings and equity mutual funds should be reinstated to promote savings and investment within regulated sectors. This incentive would be especially beneficial for salaried individuals, providing them with a tax-efficient way to grow their savings while supporting capital market development.

This proposal would also encourage broader public participation in the equity markets, enhance financial inclusion, and help channel household savings into productive economic activities.

In order to promote “Holding Company” structures in Pakistan with the aim to consolidate fragmented corporate ownership, deepen capital markets, attract investors and inculcate best in class governance and corporate practices. It has been proposed to reinstate exemption on taxation of dividend from group companies eligible under Section 59B of group relief.

Another proposal received at the FBR is that the taxation of bonus shares should be withdrawn, as treating bonus shares as taxable income for shareholders has negatively impacted capital market growth and discouraged listed companies from issuing bonus shares. Removing this tax would support market development and incentivise companies to reward shareholders through bonus issuances.

The FBR has received a budget proposal about the reinstatement of income tax credit for purchasing life insurance or health insurance.

Pakistan’s low saving and investment rate is a major reason for its underdevelopment. A tax credit on life insurance should be viewed as a significant tool of savings and investment for people, besides helping in improving the financial inclusion objectives of the Government of Pakistan.

Health Insurance provides access to quality healthcare and helps reduce the government’s burden of providing health services for the general public.

Allowance of input tax to the buyer in case payment is received by the supplier from the discount house which later recovers it from the buyer. When a supplier receives payment directly from the buyer through banking channels including credit cards, the buyer is entitled to input sales tax included in the payment.

However, when the supplier receives payment from the discount house which later recovers the payment from the buyer, the buyer is currently not entitled to input sales tax included in the payment. The relevant legal provisions need to be amended to allow input sales tax in the latter case as well (Sales Tax Act 1990), sources added.

Copyright Business Recorder, 2025