ISLAMABAD, May 21, 2025 – The federal government is working on several proposals to encourage investment and strengthen the corporate sector in the upcoming budget for fiscal year 2025-26. Among the key recommendations under serious consideration is the restoration of tax credits, which were previously available for investments in equity mutual funds and initial public offerings (IPOs).
Officials at the Federal Board of Revenue (FBR) have confirmed that most of the proposals currently under review are designed to support economic growth with minimal impact on revenue collection. These incentives aim to stimulate investment, especially in start-ups, mutual funds, and the equity market, while also encouraging better corporate governance.
One of the major proposals suggests reintroducing tax credits for individuals who invest in IPOs or equity mutual funds. This incentive could particularly benefit salaried individuals, offering them a tax-efficient option to grow their savings while simultaneously promoting financial inclusion and deepening capital market participation. These tax credits would also help channel household savings into productive sectors of the economy.
To support innovation and job creation, the government is also considering exempting income earned by Private Equity and Venture Capital Funds from income tax. However, this would apply only if these funds operate as pass-through vehicles and distribute at least 90% of their income as dividends. Additionally, it is proposed that the current 25% tax on dividends paid by such funds be reduced to 15%, aligning it with the standard rate and ensuring fairness across investment platforms.
Another proposal under review involves promoting “Holding Company” structures. By reinstating tax exemptions on dividends from group companies under Section 59B, the government aims to encourage corporate consolidation, attract more investors, and improve corporate governance standards in Pakistan.
In the insurance sector, there’s a recommendation to restore tax credits for life and health insurance premiums. Officials argue that such incentives would promote a culture of saving and investment while improving access to healthcare and reducing the government’s financial burden.
There is also a call to eliminate the taxation of bonus shares, which many believe has discouraged listed companies from rewarding shareholders and slowed market activity. Reversing this tax could support capital market growth.
Finally, the FBR is also reviewing input sales tax adjustments to ensure fairness in transactions involving discount houses. Amendments to the Sales Tax Act 1990 are being suggested to allow buyers to claim input tax even when payment is made indirectly through a discounting arrangement.
If implemented, these proposals—particularly the revival of tax credits—could signal a more investment-friendly direction in Pakistan’s fiscal policy and support long-term economic development.