The International Monetary Fund (IMF) has recommended Pakistan expand the scope of its Capital Gains Tax (CGT) to include cryptocurrencies, real estate, and listed securities. This recommendation ensures that all gains, regardless of asset type or holding period, are subject to taxation, as reported in the technical assistance report provided to Pakistani authorities.
Inclusion of cryptocurrencies in tax net
One of the key recommendations by the IMF is to bring cryptocurrencies into the tax net, broadening the types of assets subject to capital gains taxation. This move reflects the IMF’s stance on modernizing tax frameworks to adapt to evolving financial landscapes.
The IMF emphasized the need to review tax slabs on real estate and listed securities, urging Pakistan to tax capital gains on these assets regardless of the duration of ownership. This suggests a shift towards taxing capital income more uniformly, eliminating provisions that exempt gains based on holding periods.
Another significant proposal involves imposing obligations on property developers to track and report all transfers of real estate interests before the completion and registration of property titles. Failure to comply with these obligations may result in penalties, with developers bearing secondary liability for unpaid taxes.
Implementation in the next budget
These recommendations are anticipated to become part of the fiscal year 2024-25 budget through the finance bill. If integrated, they could potentially enhance Pakistan’s revenue collection efforts and align its tax policies with international standards, as the IMF advocates.
Moreover, these measures might be incorporated into the Extended Fund Facility (EFF) bailout package, reflecting the IMF’s commitment to supporting Pakistan’s economic reforms. However, it remains to be seen how Pakistani authorities and the public will receive these recommendations.
Addressing challenges in tax collection
The IMF’s technical assistance report highlighted challenges faced by Pakistani authorities in assessing and collecting taxes on capital gains from real estate transactions. Gs derived from transferring real estate interests before the legal completion of properties are often left untaxed due to a lack of proper documentation and tracking mechanisms.
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