In a bid to enhance revenue generation and strengthen taxation policies, the International Monetary Fund (IMF) has recommended Pakistan to broaden the scope of its Capital Gains Tax (CGT) to encompass cryptocurrencies and real estate gains. The move comes as part of the IMF’s technical assistance report, urging the Federal Board of Revenue (FBR) to bolster tax collection mechanisms and ensure comprehensive taxation across various asset classes.
Last year, the IMF approved a $3 billion bailout for Pakistan to support its economic stabilization program. The country is anticipated to pursue a new IMF bailout package exceeding $8 billion at the upcoming spring meetings of the IMF in Washington DC, scheduled from April 15 to 20. There is also a possibility of augmenting this package through climate finance.
An IMF team is currently in Islamabad to discuss the release of the final $1.1 billion tranche of a $3 billion bailout package. The team reportedly expressed discontent over the finance ministry’s premature announcement of the decision.
Last year, Minister of State for Finance and Revenue Aisha Ghaus Pasha told the country’s Senate Standing Committee on Finance that cryptocurrencies would “never be legalized in Pakistan,” citing the condition set by the Financial Action Task Force (FATF) to keep them off the international finance watchdog’s “Grey List.”
However, the Financial Action Task Force (FATF) later clarified that it does not mandate countries to implement a blanket ban on virtual assets and service providers, refuting the claims made by Pakistan’s finance minister.
The IMF’s recommendations, if implemented, could significantly reshape Pakistan’s tax landscape, marking a notable shift towards capturing gains from previously untaxed sectors. One key aspect of the IMF’s proposal is the inclusion of cryptocurrencies within the ambit of capital gains taxation, according to a Pakistani news channel The News. With the burgeoning popularity of digital currencies, their taxation has emerged as a crucial policy area globally, and Pakistan is no exception.
Furthermore, the IMF has underscored the importance of revising tax slabs for real estate and listed securities to ensure equitable taxation of capital gains, irrespective of the duration of asset ownership. This move seeks to eliminate the provision that exempts capital gains from taxation after a certain holding period, thereby closing potential loopholes and enhancing revenue streams.
The IMF’s recommendations also target the real estate sector, aiming to address challenges in assessing and collecting taxes on property transactions. By proposing obligations on property developers to track and report all transfers of interest in real properties, the IMF seeks to curb tax evasion and bring unrecorded property transactions into the tax net. Penalties for non-compliance, including secondary liability for any unpaid taxes, are also envisaged to enforce compliance among developers.
Moreover, the IMF’s proposal to amend the definition of “personal moveable property” to encompass a broader range of investment assets reflects a forward-looking approach to taxation. By incorporating assets capable of being held as investments, the amendment aims to adapt taxation policies to evolving financial markets and investment trends.
The recommendations put forth by the IMF are likely to feature prominently in Pakistan’s upcoming fiscal policy agenda, potentially becoming part of the next budget for the fiscal year 2024-25 through the finance bill. If adopted, these measures could bolster Pakistan’s revenue mobilization efforts, enhance tax compliance, and foster a more inclusive tax regime.
However, the implementation of these proposals may encounter challenges, including administrative complexities and resistance from stakeholders accustomed to existing tax regimes. Balancing the need for revenue generation with concerns about economic competitiveness and investor sentiment will be crucial for Pakistan’s policymakers as they navigate the path towards tax reform.
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