Visual Explainer

You pay tax on money you never made

In Pakistan — and almost everywhere — capital-gains tax is charged on the nominal gain, not the inflation-adjusted one. The part of your “profit” that is really just inflation still gets taxed. Economists call it the phantom gain.

Four quiet steps from your pocket to the treasury

No new law needed. The system simply never adjusts your purchase price for inflation — and inflation does the rest.

You invest

You buy an asset for Rs 1,00,000. That cost basis is frozen in time, forever, in nominal rupees.

Money loses value

Inflation runs every year. After a few years at 20–24%, today's Rs 1,00,000 of purchasing power needs far more rupees to replace.

The asset 'gains'

Your asset rises in rupee terms — but much of that rise is just inflation. In real terms you may have gained little, or nothing.

The tax arrives

Capital-gains tax is charged on the whole NOMINAL gain — including the inflation slice. You can owe real money on a gain that was largely an illusion.

The honest other side

The higher inflation runs, the bigger the phantom share of every gain. In high-inflation years a “profit” on stocks or property can be almost entirely currency erosion — yet the full nominal figure is taxable.

What you can do: hold longer (tax is deferred until you sell, and that deferral compounds in your favour), use tax-exempt wrappers and holding-period exemptions where they exist, and judge every investment by its after-tax real return — the only number that actually matters.

Run your own numbers

Measure returns in real terms, and see how the rupee’s slide eats into nominal gains.

Historical real returns Currency depreciation