Stock brokerage services play a central role in facilitating the buying and selling of securities on Pakistan’s stock exchanges. Brokerage firms serve as intermediaries between retail or institutional investors and the market, offering execution, advisory, research, and portfolio management services. As capital markets expand and investor participation increases, the taxation of stock brokerage services has become an important regulatory and compliance matter. These firms are subject to multiple taxes administered by both federal and provincial authorities, depending on the nature of services, the jurisdiction of operations, and the structure of the business. This article offers a comprehensive guide on how stock brokerage services are taxed in Pakistan, including income tax, sales tax on services, capital gains tax, withholding tax obligations, and compliance under the Securities and Exchange Commission of Pakistan (SECP) and the Federal Board of Revenue (FBR).
Regulatory Structure of Stock Brokerage in Pakistan
Stock brokers in Pakistan are licensed and regulated by the SECP under the Securities Act, 2015 and the Brokers and Agents Registration Rules. They must also comply with the Pakistan Stock Exchange’s (PSX) operational requirements and central depository and clearing rules issued by the CDC and NCCPL. Most brokerage firms are structured as corporate entities, i.e., private or public limited companies, and are required to be registered with the FBR for tax purposes and with the relevant Provincial Revenue Authority for sales tax on services.
Income Taxation under the Income Tax Ordinance, 2001
Brokerage firms are liable to pay income tax on the profits they earn from commissions, consultancy fees, trading spreads, and other service-based revenue. The tax is levied under the Income Tax Ordinance, 2001 and is subject to the following key provisions:
Taxation as a Company
Stock brokerage firms are taxed as companies at the corporate rate prescribed by the FBR. As of tax year 2025, the standard corporate tax rate for non-listed companies is 29%, while listed companies may qualify for a reduced rate of 27% if they meet certain conditions.
Minimum Tax under Section 113
Even if a brokerage firm reports a low or nil profit, it is required to pay minimum tax on turnover under Section 113. The current minimum tax rate is 1.25% of turnover, and it applies unless exempted under a specific provision or operating under a presumptive tax regime.
Business Income Classification
All earnings from brokerage commissions, research fees, and client advisory fall under the head of business income. Taxpayers must maintain proper books of account and submit annual income tax returns along with audited financial statements if required under company law.
Advance Tax Payments
Corporate taxpayers with substantial income must pay advance tax quarterly under Section 147 based on estimated income. Non-compliance can result in default surcharge and penalties.
Disallowance of Expenses
Brokerage firms can deduct legitimate business expenses such as salaries, rent, marketing, compliance software, research tools, and depreciation on assets. However, any undocumented or non-compliant expense can be disallowed under Section 21, increasing the tax burden.
Capital Gains Tax (CGT) on Proprietary Trading
If a brokerage firm engages in proprietary trading of stocks or securities (i.e., trading on its own account), any gains made from such trading are subject to Capital Gains Tax under Section 37A of the Income Tax Ordinance.
CGT Rates (As of 2025)
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Holding period less than 12 months: 15%
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Holding period between 12–24 months: 10%
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Holding period more than 24 months: 0%
These rates apply only to gains on shares listed on the Pakistan Stock Exchange and are subject to changes announced in annual finance bills.
Sales Tax on Brokerage Services
Brokerage services are considered taxable services and are subject to Sales Tax on Services under the respective Provincial Revenue Authorities (PRA, SRB, KPRA, BRA) or the Federal Board of Revenue (FBR) if the service is rendered in the Islamabad Capital Territory (ICT).
Sindh Revenue Board (SRB)
Brokerage firms operating in Karachi or providing services in Sindh must register with SRB. The applicable sales tax rate on brokerage services is 13%. Firms must file monthly sales tax returns, issue tax invoices, and collect tax from service recipients unless exempt.
Punjab Revenue Authority (PRA)
Firms located in Lahore or other cities of Punjab must register with PRA. The current sales tax on services provided by stock brokers in Punjab is 16%. PRA requires monthly filing and imposes penalties for non-compliance, including suspension of tax credits.
Khyber Pakhtunkhwa Revenue Authority (KPRA)
In KP, brokerage services are taxed at a 15% rate, and firms must register with KPRA and file monthly tax returns. KPRA has also digitized registration and return filing for taxpayer convenience.
Balochistan Revenue Authority (BRA)
BRA levies 15% sales tax on brokerage services rendered within the province. Registration and return filing requirements are similar to other provincial tax bodies.
Islamabad Capital Territory (ICT)
In ICT, brokerage services are taxed under the Federal Excise Act, 2005, administered by the FBR. The applicable rate is 16%, and FBR requires monthly return submission via the eFBR portal. Services provided through electronic platforms or remotely to clients in ICT also fall under this regime.
Determining Place of Supply
The key to identifying the correct tax authority is determining the place of supply. This refers to the location of the service recipient or where the benefit of service is received. For brokerage services:
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If the client is based in Punjab and receives services there, PRA tax applies.
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If the broker is based in Sindh but serves clients in KP, KPRA jurisdiction applies.
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Services provided across provinces may lead to dual taxation disputes, which must be resolved via proper documentation and client KYC.
Withholding Tax on Brokerage Commissions
Investors paying commissions to brokerage houses may be required to withhold tax under Section 153(1)(b). The applicable rate is 10% unless a lower rate is prescribed by a tax treaty or exemption is obtained. This tax is adjustable, meaning the brokerage firm can claim credit while filing its return.
Withholding by Brokerage Firms
Brokers must also deduct withholding taxes on:
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Salaries of employees (Section 149)
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Contract payments (Section 153)
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Rent (Section 155)
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Profit on debt (Section 151) if they pay returns to clients on margin accounts or investment products
These taxes must be deposited monthly, and withholding statements filed quarterly.
NCCPL’s Role in Capital Gains Tax Deduction
The National Clearing Company of Pakistan Limited (NCCPL) plays a crucial role in deducting CGT at the source on behalf of investors and brokerage firms for capital market transactions. It consolidates the transactions of each investor and calculates net gain or loss, deducts CGT, and deposits it with the FBR. Brokerage firms must reconcile these records and ensure that proprietary trading activities are accurately reported.
SECP’s Oversight and Regulatory Filings
SECP mandates that all licensed brokerage firms:
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Maintain Know Your Customer (KYC) records
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Submit monthly, quarterly, and annual returns
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Undergo annual audits by QCR-rated firms
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Disclose commission structures, trading risks, and research methodology
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Maintain segregated client accounts and conduct risk assessments
Non-compliance can result in penalties, suspension of license, or criminal prosecution under the Securities Act, 2015.
Books of Account and Record Keeping
Tax and regulatory authorities require brokerage firms to maintain accurate and up-to-date records, including:
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Client-wise commission ledgers
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Bank reconciliations and daily trading statements
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Journal entries for all tax deductions and payments
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Documentation of tax invoices issued and received
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Asset registers and depreciation schedules
Records must be preserved for six years and made available for audits or inspections.
Tax Credits and Exemptions
Certain tax credits or exemptions may be available to brokers, including:
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Tax credit for listing on PSX under Section 65C
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Tax credit for investment in plant and machinery under Section 65B if applicable
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Reduced rates for small firms under threshold turnover
However, most standard brokerage firms operate as regular corporate taxpayers without sector-specific exemptions.
Digital Brokerage and E-Services
Digital brokerage platforms offering services via mobile apps or online portals are subject to the same tax laws as traditional brokers. However, they may face additional scrutiny under digital services taxation if they receive revenue from digital advertisements or platform fees. Cross-border digital brokers offering services to Pakistani clients may fall under the scope of the Digital Tax Regime once formalized.
Tax Challenges Faced by Brokerage Firms
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Dual taxation on inter-provincial services
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Complex reconciliation of CGT through NCCPL and FBR
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High cost of compliance due to multiple returns and audits
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Frequent changes in tax rates and rules announced in budget laws
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Ambiguity in tax treatment of proprietary vs. client-based trades
Professional tax planning, digital integration, and internal compliance controls are essential to navigate these challenges effectively.
Conclusion
The taxation of stock brokerage services in Pakistan is governed by a mix of income tax, sales tax on services, capital gains tax, and withholding tax laws. Brokerages must register with both SECP and relevant tax authorities, maintain thorough documentation, and comply with multi-tiered reporting obligations. As capital markets grow and digital platforms evolve, tax compliance will become more important in building trust and transparency in the brokerage industry. Firms that invest in robust financial systems, legal advice, and tax planning will be better positioned to manage liabilities and operate sustainably. With proper understanding and timely action, brokerage companies can remain compliant while supporting the financial growth of Pakistan’s capital markets.
