Karachi, April 30, 2025 – The Pakistan Stock Exchange (PSX) has proposed a significant tax relief package aimed at attracting foreign investment into the country’s capital market, ahead of the federal budget for fiscal year 2025–26.
The PSX has formally recommended that income earned from foreign investments in listed securities, including capital gains and dividends, be exempt from tax.
In its budget proposals submitted to the government, the PSX emphasized the need for equitable tax incentives for foreign capital entering the stock market. The exchange highlighted that a similar exemption was recently granted to non-resident banking companies investing in government debt instruments such as treasury bills and Pakistan Investment Bonds (PIBs). Under Clause 4 of Rule 8 of the Seventh Schedule to the Income Tax Ordinance, 2001, both profit on debt and capital gains from these instruments are now exempt from tax.
The PSX stressed that extending the same tax benefits to foreign investment in the capital market would encourage inflows, help stabilize foreign exchange reserves, and enhance the overall performance of the market. It argued that a stronger and more vibrant capital market will not only attract foreign capital but also restore the confidence of local investors, resulting in a broader tax base and higher government revenue over time.
According to the PSX, exempting income derived from foreign investment—whether in the form of capital gains or dividends—would create a level playing field across asset classes and make Pakistan’s capital market more competitive regionally. The exchange urged the government to introduce appropriate amendments to the Income Tax Ordinance, 2001, to ensure this relief aligns with the incentives already in place for debt investments.
The rationale behind the proposal is twofold: firstly, to boost the inflow of foreign capital, thereby strengthening the country’s fragile foreign reserves; and secondly, to stimulate investment activity in the capital market by enhancing investor confidence, both foreign and domestic.
The PSX maintains that enabling tax-free foreign investment in the capital market could be a game-changer for Pakistan’s economic revival, fostering growth, liquidity, and long-term financial stability.