PSX proposes the launch of savings and investment accounts

KARACHI: The Pakistan Stock Exchange (PSX) has urged authorities to introduce savings and investment accounts in the upcoming 2022/2023 budget.

In its 2022/2023 budget proposals submitted to the Federal Board of Revenue (FBR), the PSX stated that savings and investment are crucial and play an important role in the process of socio-economic development through capital formation. . Pakistan, in addition to facing problems such as unemployment, rapid population growth, slow economic growth in the country, has a savings rate that is too low for sustainable national economic development. Low savings rates in any economy have been cited as one of the most serious constraints to sustainable economic growth. Higher savings and the associated increase in capital formation can lead to a permanent increase in economic growth rates.

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Registered Savings and Investment Accounts (RSIA) are personal accounts that allow investors to accumulate savings towards life goals. A defined amount per year can be paid into these schemes and this amount benefits from tax advantages. Most RSIA-type plans in other countries are aimed at retirement savings (for example, Individual Retirement Accounts in Canada). Other variations on the theme encourage saving towards other goals such as children’s education (Registered Education Savings Plans in Canada) or financing the future needs of a disabled person (Registered Savings Plan -disability in Canada).

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Although their design varies according to the purpose of the diets, they all have 2 characteristics in common:

  • Capital accumulates tax-free (on interest, dividends or capital gains);
  • Eligible investments in the account are listed stocks and ETFs, marketable bonds and mutual funds

In the United States, Roth Individual Retirement Arrangement (Roth IRA) is similar to TSFA. The Roth IRA was created by the Taxpayer Relief Act of 1997. The total contributions allowed per year to all IRAs is the lesser of its taxable earnings. The Packwood-Roth plan would have allowed individuals to invest up to $2,000 in an account with no immediate tax deductions, but the gains could then be withdrawn tax-free in retirement.

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The introduction of different types of Individual Savings Accounts (ISAs), such as those available in the UK, being tax free, will induce and promote national saving. ISA types include the following:

  • Cash ISA
  • Stocks and shares ISA
  • ISA for Innovative Finance
  • ISA for life

Having different types of ISAs will generally attract investment in banks, capital market, investment funds, investment funds, corporate bonds, government bonds, peer-to-peer lending (loans made to other people or businesses without going through a bank) and crowdfunding debentures (investing in a business by buying back its debt).

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Thus, by the introduction of UK-style ISAs, not only savings will be encouraged, but investments will also increase in different asset classes and financial instruments.

It is proposed that the Government of Pakistan put in place a mechanism and regulatory structure for the launch of Registered Savings and Investment Accounts and Individual Savings Accounts to help channel savings into productive investments .

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These programs will help capital from unproductive sectors and large undocumented sectors flow into the formal and productive sectors of the economy.


Where they have been introduced, RSIAs and ISAs have been very successful in channeling savings into productive investments through capital markets and are often the main source of retirement income. In Pakistan, they will bring the added benefit of driving the government’s goal of documenting the informal sector.

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The RSIAs could become one of the engines of the transformation of the Pakistani economy. According to some estimates, 40 million middle-class Pakistanis have an average accumulated wealth per capita of over USD 10,000, totaling over Rs 50 trillion. Much of this wealth is currently invested in real estate, gold and other asset classes in Pakistan and abroad. If RSIAs could capture 10% of this wealth, it would equate to more than half of the current market capitalization of PSX-listed companies or more than the outstanding GDPs and Sukuks.

Many countries have effectively used tax policies to improve investment rates and divert funds to productive sectors of the economy.

Appropriate amendment to be made to the Income Tax Order 2001.

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Dorothy H. Lewis