Fund Taxation Alert 2025-12

The Finance Act (“Act”) 2025 of 29th June 2025, introduced certain amendments that took effect on 1, July 2025:

1. Previously, capital gains (“CGT”) arising from the disposal of debt instruments and government securities by a non-resident company with no permanent establishment in Pakistan were subject to withholding tax (“WHT”) at a rate of 10%. However, under the new Act, the WHT rate on capital gains from the disposal of debt instruments and government securities when held by non-resident companies through a Special Convertible Rupee Account (SCRA) has been revised as follows:
       - 20% where securities are held for less than 6 months; and
       - 10% where a Special Convertible Rupee Account (“SCRA”) has been maintained for 6 months or more.
   
   
2. Where income exceeds 150 million including income from profit on debt, dividends, capital gains, commissions, and similar sources, a super tax shall be levied at the following rates:
   

   Income Amount	Rate applicable
   Income < Rs. 150 million	0%
   Rs. 150 million < Income < Rs. 200 million	1%
   Rs. 200 million < Income < Rs. 250 million	1.5%
   Rs. 250 million < Income < Rs. 300 million	2.5%
   Rs. 300 million < Income < Rs. 350 million	3.5%
   Rs. 300 million < Income < Rs. 350 million	5.5%
   Rs. 400 million < Income < Rs. 500 million	7.5%
   Income > Rs. 500 million	10%

3. Under the current regime, dividends from mutual funds are generally taxed at 15%. However, if a mutual fund derives 50% or more of their income from profit on debt, the applicable tax rate on dividends increases to 25%.
   With the amendments introduced by the Finance Act 2025, a more refined approach has been adopted. Taxation of dividends from mutual funds that earn income from both equity and debt securities will now depend on the proportion of average annual investments in each asset class. Specifically, dividends attributable to equity investments will be taxed at 15%, while those attributable to debt investments will be taxed at 25%.
   Additionally, a new provision imposes a higher tax rate of 29% on the portion of dividends derived from debt securities when received by corporate entities. This framework aims to ensure a more equitable taxation system, aligned with the nature of the investments and the type of recipient earning Pakistan-source income.
   
   

For further details, you can access here the Tax Flash of KPMG Pakistan.

The new provisions introduced by the Act, will not apply to gains arising from the disposal of debt securities made through a registered stock exchange and settled via the National Clearing Company of Pakistan (“NCCPL”).

In summary, different CGT rates will apply depending on the disposal date of the securities:

1. Securities acquired before 1st July 2013 shall be taxed at 0%.
2. Securities acquired between 1st July 2013 and 30th June 2022 shall be taxed at 12.5%.
3. Securities acquired between 1 July 2022 and 30 June 2024 shall be taxable at following rates depending on holding period:

   Holding period	Rate applicable
   Less than 1 year	15%
   From 1 year to 2 years	12.5%
   From 2 years to 3 years	10%
   From 3 years to 4 years	7.5%
   From 4 years to 5 years	5%
   From 5 years to 6 years	2.5%
   More than 6 years	0%

4. Capital gains arising from disposal of securities acquired on or after the 1 July 2024 up to 30^th June 2025 shall be subject to a tax at a rate of 15% for persons appearing on Active Taxpayer List (“ATL”) and 30% for persons not appearing in the ATL.
5. Capital gains arising from disposal of securities acquired on or after the 1 July 2025 shall be subject to a tax at a rate of 15% for persons appearing on ATL. For persons not appearing on the ATL, the normal slab rates applicable to individuals or associations of persons will apply, while companies will be subject to the corporate tax rate of 29%. Accordingly, foreign investment funds will be subject to CGT on capital gains from sale of Pakistani securities. A fund’s name will appear on the ATL if it obtains a National Tax Number from Pakistan Tax Authority and files its due tax returns. If the fund is not registered with the tax authority, it shall be treated as Non ATL and subject to higher rate of CGT as prescribed. 

Please note that the super tax rates indicated under point 2 are to be applied on top of any CGT rates mentioned earlier. For example, securities acquired between 1st July 2013 and 30th June 2022 will be taxed at 12.5%. However, if there is Rs. 170 million income CGT, the final rate would be 13.5% (12.5% + 1% from the super tax).

Should you have any questions or comments, please do not hesitate to contact us.