The government says it does not want to reward risk-averse investors. It wants to encourage risk takers instead. Fair enough. But in trying to make that point, it has managed to flip basic logic on its head.
Under the tabled budget, income from bank deposits and other fixed-income instruments shall be taxed at a higher rate than capital gains from equities. If you play it safe and park your money in a bank, you shall pay more tax. If you put it in stocks, you shall pay less. That is not capital market reform. That is a lopsided tax policy dressed up as one.
Most people in Pakistan are not trying to get rich off the stock market. They are just trying to protect their savings in an economy that swings from one crisis to the next. For them, fixed income is not about being “risk-averse.” It is about being rational. But now the message from policymakers is simple: if you want stability, you shall be taxed for it.
The impact on institutional investors is clear. Mutual funds and other asset managers shall be pushed toward equities, not because they believe in the market, but because they are being priced out of fixed income. The result shall be a stock market propped up by a forced shift in asset allocation. And once the index starts looking good, the government gets exactly what it wants: a shiny, upward graph to claim credit for.
This is not about investor behaviour. It is about optics. A rising KSE-100 shall now become the proxy for economic recovery, regardless of what is happening to exports, investment, or jobs.
Meanwhile, small savers shall pay the price. The real economy shall continue to struggle. And once again, we shall be left with policies that reward appearances over substance.
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