Stock exchange proposes lower corporate taxes, restored incentives and removal of withholding taxes to boost listings and market growth.
The Pakistan Stock Exchange (PSX) has proposed a series of tax relief measures and investor-friendly reforms in the federal budget 2026-27 (FY27) aimed at strengthening capital markets, encouraging new listings and improving overall investment activity.
In its budget recommendations, PSX urged the government to rationalize corporate taxation, restore investor incentives and remove structural anomalies affecting listed companies and corporate groups.
One of the key proposals relates to group relief under Section 59B of the Income Tax Ordinance, 2001. The exchange said companies are currently allowed to surrender assessed business losses within a corporate group for only three years, a restriction it argues discourages holding companies from listing subsidiaries.
PSX proposed removing any time limitation on the group relief facility to improve corporate structuring flexibility and encourage listings.
The exchange also highlighted concerns over double taxation of corporate profits. It noted that companies already face an effective tax burden of around 46%, including corporate tax, super tax, Workers Welfare Fund (WWF) and Workers Profit Participation Fund (WPPF), while dividends are further taxed at 15%.
To address this, PSX urged the government to restore the inter-corporate dividend exemption by reinstating Clause 103C of Part I of the Second Schedule, which was withdrawn under the Finance Act 2021.
Another recommendation relates to withholding tax on inter-company interest payments within corporate groups. PSX said such taxes create cash flow constraints, increase refund claims and add compliance burdens without generating additional revenue.
It proposed reinstating exemptions previously available under Section 59B-linked group relief arrangements, which existed until tax year 2016.
The exchange also opposed the taxation of bonus shares introduced through Section 236Z under the Finance Act 2023, under which companies must withhold tax at 10% on bonus share issuance. PSX called for withdrawal of the provision.
To boost derivatives trading, the exchange recommended aligning capital gains tax on derivatives and futures traded at PSX with rates applied on commodity futures at the Pakistan Mercantile Exchange, which are taxed at 5%.
PSX further proposed restoring tax credits under Section 62 for investments in shares, mutual funds, sukuks and life insurance policies, which were removed in the Federal Budget 2022-23.
Regarding real estate investment, the exchange recommended tax exemptions on property transfers to and from REIT schemes and removal of the sunset clause introduced in June 2023 on gains related to REIT structures.
PSX also called for a reduction in corporate tax rates for listed companies, arguing that Pakistan’s effective corporate tax burden is significantly higher than the Asian average of 19.74%.
It proposed a permanent 5% reduction in corporate tax for listed firms, bringing the rate to 24% for companies maintaining at least 25% free float.
According to PSX, these reforms would encourage new listings, improve liquidity, strengthen documentation of the economy and support long-term growth through a more vibrant capital market.
