Pakistan’s FY26 Budget Set to Impact Stock Market Dynamics: Focus on Tax Measures** In anticipation of the upcoming budget announcement on June 10, 2025, analysts highlight significant proposed tax measures that could influence Pakistan’s stock market landscape.

The Federal Board of Revenue (FBR) is reportedly considering an increase in tax rates on passive income by 2–3%, affecting bank deposits and saving schemes. Currently, passive income is taxed at 15% for filers and 35% for non-filers, raising concerns about potential volatility in local equities. While major changes to Capital Gains Tax (CGT) and dividend income taxation are not explicitly mentioned, experts predict an increase aligning with the proposed hikes on passive income. Any shift from the full and final tax regime to a normal tax regime for CGT and dividend income would likely be viewed negatively by investors.

Key proposals being debated include the following: –

**CGT on Derivatives**: The Pakistan Stock Exchange (PSX) is advocating for a reduction in CGT on derivatives and futures to 5%, similar to treatments for commodity contracts. However, approval for this change seems uncertain. – **Tax on Bonus Shares**: Following the imposition of a 10% tax on bonus shares in FY24, the PSX is urging its removal, arguing that it stifles growth in the capital market. – **Super Tax Rationalization**: Reports suggest potential adjustments to the Super Tax, which would impact corporate profitability. – **Corporate Tax Rate Proposals**: A proposal to permanently lower corporate tax rates for listed companies, conditional on specific compliance requirements, faces skepticism about its feasibility.

Additionally, the PSX advocates for the restoration of exemptions on intercorporate dividends and the elimination of the minimum tax regime for compliant companies—a change that is unlikely to occur this budget cycle. Other proposed measures include raising withholding tax on cash withdrawals for non-filers and increasing the Goods and Services Tax (GST) on locally manufactured cars, which could negatively affect auto manufacturers such as Pak Suzuki Motors.

Market sentiment remains cautious but optimistic, with analysts predicting that the budget may ultimately signal stable economic directions. The budget’s adoption in line with IMF guidelines is seen as a potential catalyst for market re-rating, with current valuations trading significantly under historical averages. As the market prepares for these announcements, expectations remain high for a longer-term positive outlook, contingent on successful policy implementations and broader economic stability.