Stock Brokers Association proposes restructuring of capital gains tax in next budget

Pakistan Stock Brokers Association has proposed a restructuring of capital gains tax in the 2026-27 budget, recommending a progressive system with 0% tax on securities held beyond three years and a maximum 10% rate for shorter holding periods.

In its budget proposals, the association said the current tax structure discourages long-term investment and limits capital formation. It argued that aligning CGT with holding periods would support industrial growth and deepen participation in the stock market.

The body also called for the removal of advance tax on brokerage and commission income under Section 233 of the Income Tax Ordinance, which currently requires a 12% deduction. It noted that this provision became applicable again after the abolition of Section 233A in 2019, increasing costs for brokers and affecting market activity.

PSBA proposed restoring the earlier framework where stock exchange members were exempt from such advance tax deductions, stating that this would reduce operational costs and support market growth.

On corporate taxation, the association recommended reducing the tax rate for listed companies by at least 5% to encourage documentation and attract more firms to the stock exchange. It highlighted that the current corporate tax rate stands at 29%, with an additional 4% super tax imposed on high-earning entities.

The association said that companies benefit from listing through improved governance, disclosures and access to capital, which also contributes to higher tax revenues. It added that incentivising listings would expand the tax base and increase overall revenue collection.

PSBA also proposed lowering dividend tax rates, stating that current levels discourage investment in equities. It argued that dividends are already paid from taxed corporate income and that further taxation results in multiple layers of taxation on the same earnings.

The association recommended introducing a mechanism to address this issue, noting that company profits are taxed at the corporate level, at the sponsor level and again when distributed to shareholders as dividends.

The proposals have been submitted as part of recommendations for the upcoming federal budget, with the association urging policymakers to revise tax structures to support market development and long-term investment.