Karachi, April 26, 2025 – The Pakistan Stock Exchange (PSX) has proposed a flat Capital Gains Tax (CGT) rate of 5% on all derivative instruments in its budget recommendations for the fiscal year 2025-26. This includes cash-settled derivative contracts and all futures contracts traded on the PSX.
In its proposal, the PSX emphasized that the CGT rate for derivatives should be aligned with the existing 5% CGT imposed on future commodity contracts traded at the Pakistan Mercantile Exchange (PMEX). The PSX believes that this tax alignment will ensure a level playing field for all derivative products in Pakistan’s capital markets.
Currently, gains from derivatives traded on the PSX are taxed at higher CGT rates similar to traditional capital assets. According to PSX, this lack of differentiation fails to account for the unique nature and higher risks of derivative trading. As a result, the existing structure discourages participation, restricts innovation, and hampers the growth of the domestic derivatives market.
The PSX clarified that the proposed CGT reduction will not lead to revenue loss for the Federal Board of Revenue (FBR), as many of the derivative products are either inactive or not yet launched. Historically, a similar incentive was part of the Income Tax Ordinance until 2020 for cash-settled futures but lapsed due to its time-bound nature.
Highlighting international practices, PSX noted that many exchanges across the world offer lower or no CGT on derivatives. For example, PMEX currently applies a 5% CGT on its contracts, while in Turkey’s Borsa Istanbul, there is no CGT on derivatives. PSX argued that adopting similar incentives would align Pakistan’s tax policy with global standards and attract more investors.
Moreover, PSX stated that exchange-traded derivatives are safer alternatives to leveraged trading platforms currently in use. The Securities and Exchange Commission of Pakistan (SECP), through its Derivative Market Review Committee (2016), also recommended replacing leveraged products with exchange-traded derivatives. This aligns with the Asian Development Bank’s Capital Market Development Plan 2020–2027, endorsed by the Ministry of Finance.
By reducing CGT to 5% across all derivatives traded on PSX, the exchange aims to stimulate market participation, attract foreign and local investors, and foster long-term growth of Pakistan’s financial markets. The PSX reiterated that a unified CGT policy is vital for the healthy evolution of Pakistan’s capital and derivatives markets.