Pakistan targets capital-market tax reforms as part of investment-driven growth push

• Finance minister chairs inaugural meeting of government’s Capital Market Development Council 
• Muhammad Aurangzeb pushes overhaul as Pakistan seeks to expand market-based financing

KARACHI: Pakistan has ordered a comprehensive review of capital-market taxation and incentives in a bid to attract more companies to list and deepen market-based financing, Finance Minister Muhammad Aurangzeb said on Friday after chairing the inaugural meeting of the government’s Capital Market Development Council (CMDC).

The move comes as Pakistan’s capital markets remain small relative to the size of its over $370 billion economy, with most corporate borrowing dependent on banks and a limited number of listed firms providing narrow liquidity. For years, investors and issuers have complained that complex taxes, inconsistent incentives and regulatory hurdles have discouraged new listings and kept retail participation low.

The reforms are also tied to Pakistan’s broader economic restructuring under IMF-supported commitments, which require shifting from a bank-led credit system to a more diversified financing environment that can channel savings into productive investment and help stabilize long-term growth.

“Our priority is to develop a modern, integrated, and investor-friendly capital market ecosystem, and taxation remains a key factor affecting capital-market attractiveness,” Aurangzeb told the meeting accordiing to a statement released by the finance ministry.

Aurangzeb said he had instructed Pakistan’s key financial agencies — including the Tax Policy Office, the State Bank of Pakistan, the Securities and Exchange Commission, the Debt Management Office and the Finance Division — to jointly review how capital-market taxes and incentives are structured, with the aim of reducing barriers to new listings, improving transparency and making the market more attractive for both companies and investors.

Discussions at the meeting also focused on boosting retail and institutional participation, diversifying investment products, improving facilitation for intermediaries such as brokers and mutual funds, and creating incentives for companies to raise funds through equity and corporate bonds rather than relying heavily on banks.

The council also examined the requirements for cross-border market integration, alignment of trading technologies with global platforms and regulatory modernization to support foreign participation and dual listings.

Aurangzeb noted that structural reforms underway had contributed to improved market performance this year but stressed that Pakistan must remove longstanding bottlenecks that have prevented deeper market development.

“Capital markets must play a central role in connecting entities that require capital with those possessing savings,” he said.

The council agreed to form dedicated working groups across priority areas, with instructions to prepare key performance indicators and implementation plans within two weeks. Quarterly progress reports will be submitted to the finance ministry, and meetings will be held at least once every quarter to track outcomes.