PTBP Web Desk
The Federal Board of Revenue (FBR) has announced a new tax measure, imposing a 20 percent capital gains tax on the early disposal of federal government debt securities within six months of purchase. This change is part of the updated provisions introduced through the Finance Act 2025 and will affect non-resident investors operating through the Special Convertible Rupee Account (SCRA).
In its latest income tax circular, the FBR clarified that prior to the Finance Act 2025, capital gains earned by non-resident persons with no permanent establishment in Pakistan — who invested in federal debt securities via an SCRA — were taxed at 10 percent, regardless of how long the securities were held.
Under the revised law:
- A 10 percent tax rate will now apply only to capital gains on the disposal of federal government debt securities held for more than six months.
- A higher 20 percent tax rate will be imposed if the securities are sold within six months of purchase.
This means investors who dispose of their holdings before the six-month mark will face double the previous tax rate on their capital gains.
The change specifically targets non-resident investors using the SCRA, a banking facility that allows foreign investors to invest in Pakistan’s debt market. These investors often engage in short-term trading for quick returns, which the FBR believes can cause volatility in the domestic debt market.
By introducing a higher tax rate for early disposals, the FBR aims to:
- Encourage long-term holding of federal debt securities.
- Promote market stability.
- Align Pakistan’s taxation policies with international investment norms.
Capital gains tax is charged on the profit made from selling an asset at a higher price than its purchase cost. In the context of federal debt securities, gains are earned when an investor sells bonds, treasury bills, or other government-backed debt instruments at a profit before maturity.
Previously, the uniform 10 percent rate for non-resident investors meant that both short-term and long-term holdings were taxed equally. Critics argued that this did not incentivize investors to hold securities for longer durations, potentially leading to rapid inflows and outflows in the debt market.
The Finance Act 2025 has brought several changes to Pakistan’s tax laws, aiming to increase government revenue and improve market discipline. The revised capital gains tax structure for debt securities is one of the measures intended to discourage speculative trading and stabilize the country’s investment environment.
An FBR official stated that the measure will not only generate additional revenue but also send a clear message to foreign investors that Pakistan encourages sustainable investment strategies over short-term profit-taking.
For instance:
- If a non-resident investor buys treasury bills worth Rs100 million and sells them within three months, earning a profit of Rs10 million, the capital gains tax would be Rs2 million at the 20 percent rate.
- If the same investor holds the securities for eight months before selling and earns Rs10 million in profit, the tax would be Rs1 million at the 10 percent rate.
This illustrates the significant cost difference between early disposal and long-term holding.
The FBR has assured that it will closely monitor transactions involving federal debt securities to ensure compliance with the new rules. Banks and authorized dealers managing SCRA accounts will be required to:
- Report all disposals of federal debt securities by non-resident investors.
- Deduct the applicable tax at the time of transaction settlement.
This approach will help the FBR maintain accurate records and prevent tax evasion.
- Federal Board of Revenue Official Website — for official tax circulars and policy updates.
- State Bank of Pakistan – SCRA Guidelines — to understand rules for Special Convertible Rupee Accounts.
- Internal link suggestion: Coverage of Finance Act 2025 tax changes on your platform.
