The Pakistan Stock Exchange (PSX) has proposed to the authorities the restoration of tax credits in the budget for 2024-25 concerning investments in shares.
In its recommendations for the budget, the PSX emphasized the importance of tax credits, particularly for small savers, including the salaried class, to encourage long-term savings for retirement and other life goals. These savings serve as a crucial channel towards both the stock market and government securities.
The capital market is currently grappling with the challenge of matching returns available through alternative investment avenues. Therefore, it requires incentives to attract investors. The withdrawal of tax credits for individual investors, as stipulated by the Finance Act of 2022, covering investments in new shares, mutual funds, sukuk, and life insurance policies, is likely to divert public funds towards other undocumented sectors offering potentially higher returns.
To address this issue, the PSX has proposed the reinstatement of Section 62 of the Income Tax Ordinance, 2001, which was removed in the federal budget for 2022-23. This move aims to promote savings among taxpayers while having minimal impact on revenue generation.
The PSX provided rationale for its proposal, highlighting how tax credits under Section 62 of the Income Tax Ordinance, 2001, have historically incentivized individuals to save for retirement and other objectives over the years. In a country with a savings rate significantly lower than its peers, such measures become even more critical. Moreover, similar incentives are not uncommon in other countries around the world.
Restoring tax credits for share investments aligns with the broader objective of fostering a culture of savings and investment in Pakistan. By incentivizing individuals, especially those from the salaried class, to invest in the stock market and government securities, it promotes financial inclusion and contributes to the development of the capital market.
Furthermore, reinstating these tax credits can help mitigate the challenges faced by the capital market in attracting sufficient investment. It not only encourages individual investors but also enhances overall market liquidity and stability. This, in turn, supports economic growth and facilitates capital formation, which are essential for the country’s long-term prosperity.
In conclusion, the proposal by the PSX to restore tax credits on share investments in the budget for 2024-25 represents a proactive step towards bolstering savings, encouraging investment, and strengthening the capital market. By recognizing the importance of incentivizing individual investors, particularly in a country with low savings rates, such measures can play a pivotal role in driving economic growth and financial stability.
