ISLAMABAD: Pakistan Stock Brokers Association (PSBA) has called for rationalization of Capital Gains Tax (CGT) on the disposal of securities in the upcoming 2026-27 budget.
According to the budget proposals of the PSBA, a representative body of the TREC Holders/Stock Brokers of the Pakistan Stock Exchange (PSX), the CGT on the disposal of securities may be applied progressively based on the holding period. If the holding period exceeds three years, the capital gain may be reduced to zero. For a holding period of up to three years, the CGT should not exceed 10 percent. This approach aims to encourage capital formation and promote industrial growth through investment in the stock market.
High tax rates drive investors away, harming FBR’s revenue and hindering industrialization and stock market development.
To promote long-term investment in stocks, no tax should apply if the holding period is three years or longer, it is proposed.
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As discussed in Circular 04 of 2004 (Income Tax), by virtue of the applicability of tax under section 233A, the provisions of section 233 of the Income Tax Ordinance, 2001, shall not apply to the members of the stock exchange.
However, after the enactment of the Finance Supplementary (Second Amendment) Act, 2019, whereby the advance tax under Section 233A has been abolished, a consequential impact has emerged. The provisions applicable to brokerage and commission income under section 233 have again become applicable. According to these provisions, any payment made on account of brokerage or commission requires the principal to deduct advance tax at the rate specified in Division II of Part IV of the First Schedule, which is currently 12 percent.
The reduction of the tax rate on brokerage and commission payments to brokers holds manifold benefits.
Not only does it serve to alleviate the escalating costs associated with conducting business for them, but it also fosters growth within the Stock Market.
In light of the aforementioned considerations, we propose that Section 233 be rendered inapplicable to members of the Stock Exchange, akin to its prior state preceding the abolishment of Section 233A.
It is generally observed that when companies opt for a listing on a stock exchange, their profits grow substantially due to effective corporate governance, better disclosures, and the ability to raise capital from the market. An increased number of listed companies and higher tax revenue for the Government, including incremental revenue from CGT, is important to encourage companies to get listed on the PSX.
Currently, in Pakistan, the corporate tax rate is 29 percent. In addition, a super tax of @4 percent has also been imposed through the Finance Act, 2022, on high-earning persons. As such, the corporate tax rate must be brought down reasonably to compete with other countries in the region and beyond.
Therefore, to encourage documentation and create a long-term positive impact on tax revenue, there should be reduced rates of tax for listed companies compared to unlisted companies.
To encourage documentation of the economy, the corporate tax rate should be permanently lowered for listed companies by at least 5 percent.
The present tax rate on dividends is confiscatory and has discouraged investment in stocks, which in turn has slowed down the process of industrialization. Reducing the tax rate would generate more investment in stocks and more revenue for the government.
Furthermore, the dividend is paid out of the tax-paid income of the company, and the tax on the dividend amounts to triple taxation of the same income; therefore, the government should introduce a mechanism to remove triple taxation of the company’s profits; a) Once in the hands of the company; b) Once in the hands of the sponsors, and c) Once in the hands of shareholders as dividends, the PSBA added.
Copyright Business Recorder, 2026
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