The Pakistan Stock Exchange (PSX) has proposed a wide range of tax reforms and investor incentives for Budget 2026-27, urging the government to lower the tax burden on listed companies, restore investment-related tax benefits, and remove withholding taxes that it says are hindering capital market growth.
In its budget proposals, the stock exchange argued that a competitive tax regime is essential to attract investment, encourage new company listings, and strengthen Pakistan’s capital markets.
Among the key recommendations is an amendment to Section 59B of the Income Tax Ordinance, 2001, which currently allows companies within a corporate group to surrender assessed business losses for only three years. PSX believes this limitation discourages corporate restructuring and the listing of subsidiary companies. It has proposed removing the time restriction altogether to provide greater flexibility to corporate groups.
The exchange also raised concerns about what it described as double taxation of corporate profits. According to PSX, listed companies face an effective tax burden of nearly 46 percent when corporate tax, super tax, Workers Welfare Fund (WWF), and Workers Profit Participation Fund (WPPF) are combined. In addition, dividend income is taxed separately at 15 percent.
To address the issue, PSX has recommended restoring the exemption on inter-corporate dividends by reinstating Clause 103C of Part I of the Second Schedule, which was withdrawn through the Finance Act 2021.
Another proposal calls for the removal of withholding tax on inter-company interest payments within corporate groups. The exchange argued that such taxes create unnecessary cash flow issues, increase refund claims, and add compliance costs without significantly boosting tax revenues.
PSX has also requested the withdrawal of Section 236Z, introduced through the Finance Act 2023, under which companies are required to deduct 10 percent withholding tax on the issuance of bonus shares. According to the exchange, the provision discourages corporate growth and shareholder value creation.
To promote activity in the derivatives market, PSX proposed reducing the capital gains tax on derivatives and futures contracts traded on the exchange. It suggested aligning the tax rate with the 5 percent rate currently applicable to commodity futures traded at the Pakistan Mercantile Exchange.
The exchange further recommended restoring tax credits under Section 62 for investments in shares, mutual funds, sukuks, and life insurance policies. These incentives were abolished in Budget 2022-23, and PSX believes their restoration would encourage retail investment and improve savings culture.
In the real estate investment segment, PSX has sought tax exemptions on property transfers to and from Real Estate Investment Trusts (REITs). It also proposed removing the sunset clause imposed in June 2023 on gains associated with REIT structures to support long-term investment in the sector.
A major recommendation from the exchange is a permanent reduction in corporate tax rates for listed companies. PSX argued that Pakistan’s effective corporate tax burden is substantially higher than the regional average and may discourage investment in the formal economy.
The exchange proposed reducing the corporate tax rate for listed companies by 5 percent, bringing it down to 24 percent for firms that maintain a free float of at least 25 percent.
According to PSX, the proposed tax reforms would improve market liquidity, encourage new listings, attract domestic and foreign investment, strengthen economic documentation, and support sustainable growth in Pakistan’s capital markets.
