FBR mandates banks to deduct withholding tax on capital gains from FCVA, FCBVA, NRVA and NRBVA accounts
The Federal Board of Revenue issued a new circular requiring banks to withhold tax on capital gains earned through foreign‑currency and non‑resident rupee value accounts, affecting banking revenues and investor returns.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Negative · Do not buy
Banks face higher withholding tax obligations, reducing net returns and fee income – Don't buy banking stocks.
Sectors & Direction
Desk read
Desk call: Do not buy · Negatively affected
- BanksNegatively affected
Companies
Companies Mentioned
- ISL· Negatively affected · Do not buy
Mentions in This Briefing
Sectors: Banks — Negative · Do not buy. PSX tickers: ISL. Banks face higher withholding tax obligations, reducing net returns and fee income – Don't buy banking stocks.
Full Story
Open on Business Recorder## New Tax Circular Issued by FBR
The Federal Board of Revenue (FBR) released Income Tax Circular No. 2 of 2026, altering the capital‑gains computation and withholding regime for certain bank‑held accounts. The circular applies to Foreign Currency Value Accounts (FCVAs), Foreign Currency Business Value Accounts (FCBVAs), Non‑Resident Rupee Value Accounts (NRVAs) and Non‑Resident Rupee Business Value Accounts (NRBVAs).
## Withholding Tax Requirement
Banks that maintain any of the above accounts must now deduct withholding tax (WHT) on capital gains arising from the disposal of debt instruments, government securities and certificates – including their Shariah‑compliant variants – invested through these accounts. The tax rate is set in Division II of Part III of the First Schedule of the Income Tax Ordinance.
## Specific Provisions
- Section 100B: The reference to non‑banking finance companies has been removed, extending special provisions of Section 37A to banks, mutual funds, and insurance companies for capital‑gain calculations. - Section 152 (sub‑section IDA): Introduces the mandatory WHT deduction for the listed account types. - Reduced Rates: Profit on debt from a rupee account held with a scheduled bank is exempt for holders of NRVA/NRBVA accounts. A 10 % WHT applies to profit on debt from federal government securities purchased through the specified foreign‑currency or non‑resident accounts. - Private Equity Exemption: Clause 99C exempts income of private equity and venture capital funds that distribute at least 90 % of their accounting income. - Minimum Tax Reduction: Clause 24D lowers the minimum tax for certain distributors and dealers to 0.5 %.
## Market Implications
The additional withholding obligation raises the cost of holding debt‑based investments through these accounts, potentially reducing demand for such products and impacting banks’ fee‑based income. Investors may see lower net returns on capital‑gain‑generating securities held in FCVAs, FCBVAs, NRVAs and NRBVAs.
## Shariah Perspective
The rule also covers Shariah‑compliant debt instruments, meaning Islamic banks must apply the same withholding tax, affecting the net yield of Sukuk and other permissible securities.
## What Investors Should Watch
- Monitoring how banks adjust their fee structures and product pricing. - Assessing the impact on foreign‑resident investor inflows into Pakistani debt markets. - Observing any regulatory clarification or further rate adjustments.
## Relevant Entities
The directive directly involves all scheduled banks in Pakistan, including Islamic banks such as Islamic Bank Ltd (ISL).