Karachi, April 5, 2024 – The Pakistan Stock Exchange (PSX) has called upon the government to rationalize tax policies on dividends in the upcoming budget 2024-25, aiming to stimulate investment in the capital market.
In its recommendations for the forthcoming budget, the PSX highlighted the disparity in tax rates on dividends, stating that the current structure disproportionately impacts investors. Presently, the tax rate on dividends stands at 25 percent for individuals receiving dividends from companies not liable for tax due to exemptions or losses, and 50 percent for non-filers, which exceeds the standard tax rate of 29 percent. The PSX emphasized the need to reduce the tax burden on this category of investors.
The stock exchange proposed a rationalization of the tax rate on dividends to incentivize participation, particularly among small investors. It argued that dividends are distributed from taxed corporate income, resulting in triple taxation of the same earnings. The existing tax regime, deemed confiscatory by the PSX, has hindered investment in stocks and impeded the industrialization process.
Proposed amendments to clause (d) under Division I, Part III of the First Schedule of the Income Tax Ordinance, 2001, were recommended by the PSX. The suggested amendment aims to revise the tax rate to 25 percent for individuals receiving dividends from companies exempt from tax liability due to income exemptions, business losses carryforwards, or tax credits.
The rationale behind the proposal is to create a more conducive environment for investment in the capital market by aligning tax policies with investor interests and market dynamics. By reducing the tax burden on dividends, the PSX seeks to enhance investor confidence, attract new participants, and promote capital formation.
The PSX’s advocacy for tax rationalization reflects its commitment to fostering a robust and vibrant capital market ecosystem in Pakistan. Recognizing the pivotal role of the capital market in driving economic growth and development, the PSX endeavors to create an investor-friendly environment conducive to sustainable investment and market expansion.
As Pakistan navigates its economic landscape, policymakers are urged to consider the recommendations put forth by the PSX to promote capital market growth and bolster investor confidence. By implementing prudent tax reforms, the government can pave the way for a thriving capital market that serves as a catalyst for economic progress and prosperity.
