Pakistan Faces IMF Pressure to Tax Crypto and Real Estate

According to a local news outlet, the International Monetary Fund (IMF) has stipulated that Pakistan’s Federal Board of Revenue (FBR) must levy a capital gains tax (CGT) on crypto investments and real estate as part of the conditions for receiving a $3 billion bailout package.

Additionally, the IMF has advised Pakistan to reevaluate the taxation of real estate and listed securities.

IMF Urges Pakistan to Tax Crypto Gains and Review Real Estate Taxation for SBA Approval

During discussions regarding a $3 billion stand-by arrangement (SBA), the IMF recommended that the FBR impose taxes on crypto capital gains and review the taxation structure for real estate and listed securities. The aim is to ensure that all profits are taxed without any exceptions based on the duration of asset ownership.

Furthermore, the IMF has proposed that property developers monitor and report all transfers before the completion and registration of property titles. Failure to comply with these regulations could result in penalties. This move is intended to bring the buying and selling of property files in housing schemes under the tax net.

These recommendations are likely to be included in the upcoming bailout package under the Extended Fund Facility (EFF). The FBR may be obligated to incorporate these measures into the next budget for the fiscal year 2024-2025 through the finance bill. Consequently, Pakistan could officially introduce a stringent tax on crypto capital gains in its budget for the specified fiscal year.

The $3 billion IMF aid is intended to stabilize Pakistan’s hyperinflated fiat economy and prevent a debt default. Various factors, such as geopolitical tensions, natural disasters, and unstable governance, have contributed to Pakistan’s economic challenges. The IMF review, which began on March 14 and is expected to last four days, will result in the disbursement of around $1.1 billion if Pakistan agrees to comply with the conditions set forth by the IMF.

It’s noteworthy that the call for taxing crypto capital gains comes approximately one year after Aisha Ghaus Pasha, the minister of state for finance and revenue, expressed that Pakistan would not legalize crypto trading.

IMF Report Flags Challenges in Taxing Real Estate Capital Gains in Pakistan

The IMF’s technical assistance report highlights the challenges faced by Pakistani authorities in assessing and collecting taxes on capital gains from real estate transactions. One major issue is the lack of formal registration of real estate interests until the legal completion of the property, which means that transfers of real estate interests before legal completion are not captured in any record system.

As a result, gains made by sellers through such transfers of interest in incomplete properties are often untaxed. To address this, the IMF has proposed imposing obligations on property developers to track and report all transfers of interest in real properties before legal completion and registration of property titles. Penalties would be imposed for noncompliance, and property developers may become responsible for any unpaid taxes if they cannot be recovered from the transferor.

In addition to strengthening the taxation of real estate capital gains, the IMF has recommended broadening the scope of assets subject to capital gains taxation. This includes ensuring that new types of investment assets, such as cryptocurrencies, fall under capital gains taxation.

Notably, the Securities and Exchange Commission of Pakistan (SECP) appears to be adopting a more open approach to crypto regulation in the country, as indicated by a recent position paper. With Pakistan being one of the top emerging crypto markets with a population of over 212 million people, this shift is significant.

The SECP’s stance is based on the ‘do-not-harm’ approach, which emphasizes a ‘let-things-happen’ philosophy. This approach acknowledges the dynamic nature of the financial sector and the importance of innovation. By adopting this approach, the SECP aims to avoid overregulation that could stifle innovation while also addressing potential risks in the crypto space. This indicates a willingness to embrace the opportunities presented by cryptocurrencies while also ensuring regulatory oversight to protect investors and maintain financial stability.