Karachi, May 1, 2025 — The Pakistan Stock Exchange (PSX) has submitted a set of tax proposals for the federal budget 2025–26, calling for a permanent reduction in corporate tax rates for listed companies.
The key recommendation is to provide a 20% tax credit on the total tax payable for those listed companies that fulfill specific requirements, such as maintaining a minimum free float of 25% throughout the fiscal year.
The PSX argues that this move will not only incentivize more companies to get listed but will also promote economic documentation and enhance tax revenues over the long term.
Why Encourage Listed Companies?
The PSX highlighted several benefits of promoting listed companies:
1. Improved Corporate Governance: Historically, listed companies have shown better profitability due to stronger corporate governance practices, enhanced transparency, and easier access to capital markets.
2. Increased Tax Revenues: More listed companies will lead to:
o Higher corporate tax revenues as these firms grow in profitability.
o More earnings from broker activity during new listings.
o Increased Capital Gains Tax collections from the trading of newly listed securities.
3. Privatization Boost: With the government accelerating privatization, a tax-friendly regime for listed companies will attract both domestic and foreign investors, expanding the stock market’s breadth.
4. Global Competitiveness: Pakistan’s corporate tax rate currently stands at 29%, significantly higher than the Asian average of 19.74%. This rate, combined with the super tax introduced through the Finance Act 2023, makes it difficult for Pakistan to compete regionally. A reduced tax rate for listed companies will enhance competitiveness and investor confidence.
Market Dynamics
As of December 31, 2024, PSX reported:
• 34 new listings (including preference shares of already listed firms).
• 18 delistings amounting to Rs. 148,421 million.
• 20 mergers resulting in delistings worth Rs. 5,082 million.
These figures underline the need for incentives to maintain and grow the number of listed companies on the exchange.
The PSX concluded that rationalizing the tax structure will create a more vibrant capital market, encourage more companies to go public, and ultimately lead to sustainable economic growth through increased documentation and revenue generation.