EconomyPakistan

Cryptocurrencies and Real Estate Transactions to Enter Tax Net in Pakistan: IMF

The International Monetary Fund (IMF) has proposed a series of recommendations to the Federal Board of Revenue (FBR) in Pakistan, aimed at expanding the scope of the Capital Gains Tax (CGT). The key focus of these recommendations is to bring cryptocurrencies and real estate transactions into the tax net.

The IMF’s suggestions came to light during ongoing review talks between the Fund and Pakistani authorities on the $3 billion stand-by arrangement (SBA)34. The successful conclusion of these talks could unlock a final tranche of around $1.1 billion, which Islamabad secured last summer as part of a rescue package to prevent a sovereign debt default.

The IMF has urged the FBR to review the tax slabs for real estate and listed securities. The aim is to ensure that all gains are taxed, regardless of how long the assets are held. This marks a significant shift from the current practice where certain gains are not taxed if the assets have been held for a specific period.

In addition, the IMF has recommended that property developers be required to track and report all transfers prior to the completion and registration of property titles. This measure is designed to bring the widespread practice of buying and selling files of different plots in housing schemes into the tax net.

Failure to comply with these requirements could result in penalties. In some cases, the property developer might be held responsible for any tax payable if such tax cannot be recovered from the transferor.

These recommendations could become part of the upcoming bailout package under the Extended Fund Facility (EFF). As such, the FBR might be required to incorporate these changes into the next budget for FY2024-25 through the finance bill.

The IMF’s technical assistance report highlighted the challenges faced by Pakistani authorities in assessing and collecting tax on capital gains arising from the disposal of interests in real estate. Currently, interests in real estate are generally not formally registered until the legal completion of the property. As a result, gains derived by a seller through the transfer of interest in an uncompleted property are typically not taxed.

To strengthen the taxation of capital gains, the IMF has proposed broadening the types of assets subject to capital gains taxation. This includes ensuring that new types of investment assets, such as cryptocurrencies, are within the scope of capital gains taxation.

The IMF has also recommended amendments to the Income Tax Ordinance. Specifically, it has suggested changes to the definition of “personal moveable property” in Section 37(1) of the Ordinance. The proposed amendment would include a catch-all category comprising any property capable of being held as an investment.

Back to top button