KARACHI: Pakistan’s stockbrokers have urged the government to introduce tax-free investment accounts in the upcoming federal budget, with their representative association saying on Saturday the measure could attract millions of new investors and help channel savings into the formal economy.
The proposals came from the Pakistan Stock Brokers Association (PSBA), which is targeting a record 16 initial public offerings (IPOs) in the next fiscal year and aims to expand the investor base at the Pakistan Stock Exchange (PSX) from around 565,000 to 2.5 million over the next two years.
“Our proposal is to introduce a tax saving account, just like it happens all over the world, in Japan, USA, UK, which is known as Investment Saving Account,” Bilal Farooq Zardi, the association’s chief executive officer, told Arab News ahead of the government’s June 10 budget announcement.
Prime Minister Shehbaz Sharif’s government is trying to revive Pakistan’s economy under an International Monetary Fund (IMF) loan program that requires reforms aimed at increasing revenues and broadening the tax base.
According to Zardi, an Investment Saving Account would allow individuals to invest in stocks while enjoying tax exemptions on capital gains and dividend income up to a stipulated limit. Similar schemes are used in several countries to encourage savings and participation in financial markets.
“If it is introduced, then we can attract low-income groups, students, housewives, widows and retired persons because this model has been very successful all over the world,” he said.
The stockbrokers’ association believes the measure could help redirect household savings from assets such as real estate and gold into productive investments that support businesses and economic growth.
“It would be advantageous if we could capture just 10 percent of that wealth,” Zardi said.
The association is also seeking changes to Pakistan’s Capital Gains Tax (CGT) regime. Capital gains tax is levied on profits earned from the sale of shares and other investments.
Zardi said the current system applies the same tax rate regardless of how long an investor holds a stock, discouraging long-term investment.
“When we talk about real estate, there are some exemptions given after 3-4 years. But when we talk about the stock market, whether the holding period of our inventory is one month, one year, five years or 50 years, we have to pay 15 percent,” he said.
He said the association wants the government to lower the tax burden on investors who hold shares for longer periods, arguing that such incentives would encourage investment in listed companies and strengthen capital markets.
“High tax rates drive investors away, harming FBR’s revenue and hindering industrialization and stock market development,” he continued, referring to the Federal Board of Revenue, the government’s tax collection agency.
Zardi also called for a review of taxes on dividends paid between companies, saying the current system results in multiple layers of taxation before profits ultimately reach investors.
Other proposals include abolishing taxes on bonus shares, simplifying customer verification requirements under anti-money laundering regulations, reducing taxes on brokerage services and lowering the corporate tax rate for listed companies.
The association expects a record number of companies to raise capital through stock market listings next year.
“This year, we have made it 12 and next year, God willing, we intend to make it 15 to 16,” Zardi said while mentioning initial public offerings.
He said the association wanted to increase the PSX investor base fivefold over the next two years.
“Today, our investor base is 5,65,000, which we will target to reach 2.5 million,” Zardi added.
PSX Chief Executive Officer Farrukh H. Sabzwari did not respond to requests seeking views on the upcoming budget.
