By Ayesha Saba

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed a range of tax reforms for the federal budget FY2026-27 aimed at encouraging investment and increasing capital market activity, including lower capital gains tax and reduced taxation on dividend income.

According to the FPCCI budget proposals document available with Wealth Pakistan, the business body believes that rationalizing taxes on investments can help channel savings toward productive sectors and strengthen economic activity.

The proposals state that high capital gains tax rates discourage investors and hinder industrial growth and stock market development.

FPCCI recommended reducing capital gains tax rates across different holding periods. Under the proposed structure, gains on investments held for less than one year would be taxed at 10% instead of the current 15%. For investments held between one and two years, the proposed rate is 7.5% instead of 12.5%, while gains from holdings between two and three years would be taxed at 5% rather than 10%.

The chamber also proposed eliminating capital gains tax on investments held for more than three years, compared to the existing 7.5% rate.

According to the document, lower tax rates could encourage longer-term investments and support market growth by improving investor confidence.

FPCCI also proposed reducing the tax rate on dividend income from the current 15% to 10%.

The organization stated that dividend income is distributed from earnings that have already been taxed at the corporate level and argued that the existing framework can result in multiple layers of taxation in some cases.

The chamber further proposed reducing withholding tax on bank profits from 20% to 10%, maintaining that high tax rates on savings discourage investment in formal financial channels.

According to the proposals, lower taxes on financial returns may encourage more people to place savings into documented investment avenues and strengthen financial market participation.

FPCCI maintained that stronger investment activity could support broader economic growth by improving capital formation, increasing business expansion, and generating employment opportunities.

The organization emphasized that tax policies should create incentives for investment while supporting economic productivity and long-term financial stability.

Credit: INP-WealthPk