According to a local news service, the International Monetary Fund (IMF) has stipulated that Pakistan’s Federal Board of Revenue (FBR) must impose a capital gains tax (CGT) on cryptocurrency and real estate investments as part of the conditions for receiving the $3 billion bailout package.
In addition, the IMF has advised Pakistan to reassess its taxation of real estate and listed securities.
IMF urges Pakistan to tax cryptocurrency profits and review property taxation
During discussions on the $3 billion Stand-By Agreement(SBA), the IMF recommended that the FBR impose taxes on capital gains from cryptocurrencies and review the tax structure for real estate and listed securities. The goal is to ensure that all gains are taxed without any exceptions depending on the duration of asset ownership.
In addition, the IMF has proposed that developers monitor and report all transfers prior to completion and registration of titles. Failure to do so could result in penalties.
These recommendations are likely to be included in the upcoming assistance package under the Extended Fund Facility(EFF). The EFF may be required to include these measures in the next budget for fiscal year 2024-2025 through a finance bill. As a result, Pakistan could officially introduce a strict capital gains tax on cryptocurrencies in its budget for a specific fiscal year.
The $3 billion in IMF aid is aimed at stabilizing Pakistan’s hyperinflated fiat economy and preventing a debt default. Various factors have contributed to Pakistan’s economic challenges, including geopolitical tensions, natural disasters and unstable governance. The IMF review, which began on March 14 and is expected to last four days, will conclude with a disbursement of about $1.1 billion if Pakistan agrees to meet the conditions set by the IMF.
It’s worth noting that the call for a capital gains tax on cryptocurrencies came about a year after Minister of State for Finance and Revenue Aisha Ghaus Pasha declared that Pakistan would not legalize cryptocurrency trading.
IMF report identifies challenges in capital gains and property taxation in Pakistan
An International Monetary Fund technical assistance report has highlighted the difficulties facing Pakistani authorities in determining and collecting taxes on capital gains from real estate transactions. A major problem is that real estate holdings are not formally registered until construction is legally completed. This means that transfers of real estate interests prior to legal completion of construction are not registered in any record-keeping system.
As a result, profits made by sellers as a result of such transfers of interests in incomplete properties are often untaxed. To address this problem, the IMF has proposed imposing obligations on developers to track and report all transfers of real estate interests prior to their legal completion and registration of titles. Penalties will be imposed for non-compliance, and developers may be liable for any unpaid taxes if they cannot be recovered from the transferor.
In addition to tightening the taxation of capital gains on real estate, the IMF has recommended expanding the scope of assets subject to capital gains taxation. This includes ensuring that new types of investment assets, such as cryptocurrencies, are subject to capital gains taxation.
It is worth noting that the Securities and Exchange Commission of Pakistan (SECP) appears to be taking a more open approach to regulating cryptocurrencies in the country, as indicated in a recent post. Given that Pakistan is one of the best emerging cryptocurrency markets with a population of more than 230 million people, this change is significant.
The SECP’s position is based on an approach that emphasizes a “let’s make things happen” philosophy. This approach recognizes the dynamic nature of the financial sector and the importance of innovation. By taking this approach, the SECP aims to avoid over-regulation that could stifle innovation, while addressing potential risks in the crypto space. This indicates a desire to capitalize on the opportunities presented by cryptocurrencies while providing regulatory oversight to protect investors and maintain financial stability.
