Under the weight of IMF pressure, Pakistan is confronted with the imperative to impose taxes on both cryptocurrency and real estate.

As reported by a local news outlet, the International Monetary Fund (IMF) has mandated that Pakistan’s Federal Board of Revenue (FBR) impose a capital gains tax (CGT) on cryptocurrency investments and real estate transactions as a prerequisite for accessing a $3 billion bailout package.

Furthermore, the IMF has recommended that Pakistan reassess its taxation policies concerning real estate transactions and listed securities.

The IMF is pressing Pakistan to tax cryptocurrency profits and review its real estate taxation policies to secure approval for the Stand-By Arrangement (SBA).

In the course of negotiations concerning a substantial $3 billion stand-by arrangement (SBA), the International Monetary Fund (IMF) has proffered recommendations to the Federal Board of Revenue (FBR) of Pakistan. Among these recommendations is the imposition of taxes on capital gains derived from cryptocurrency investments, alongside a comprehensive review of the existing taxation framework governing real estate and listed securities. The overarching objective is to ensure equitable taxation of all profits, eliminating any exemptions contingent upon the duration of asset ownership.

Moreover, the IMF has put forth a proposal for stringent oversight measures within the real estate sector, suggesting that property developers should be mandated to monitor and report all transactions preceding the completion and formal registration of property titles. Non-compliance with these regulations could entail penalties. This proposal seeks to encompass the buying and selling of property files in housing schemes within the ambit of taxable transactions, thereby broadening the tax base.

These recommendations are anticipated to be integrated into the forthcoming bailout package under the Extended Fund Facility (EFF). The FBR may find itself compelled to incorporate these measures into the subsequent budget for the fiscal year 2024-2025 via the finance bill. Consequently, Pakistan could officially introduce a rigorous tax regime targeting capital gains from cryptocurrency investments in its budget for the specified fiscal year.

The $3 billion IMF aid is envisioned as a means to stabilize Pakistan’s hyperinflated fiat economy and avert the looming specter of a debt default. A myriad of factors, including geopolitical tensions, natural calamities, and governance instability, have collectively exacerbated Pakistan’s economic predicament. The ongoing IMF review, which commenced on March 14 and is slated to span four days, is poised to culminate in the disbursal of approximately $1.1 billion contingent upon Pakistan’s acquiescence to the conditions delineated by the IMF.

It’s noteworthy that the proposition to tax capital gains derived from cryptocurrency investments materializes approximately one year subsequent to Aisha Ghaus Pasha, the minister of state for finance and revenue, publicly expressing Pakistan’s stance against legalizing cryptocurrency trading.

A report from the IMF highlights hurdles in implementing taxation on real estate capital gains in Pakistan.

The IMF’s technical assistance report underscores the formidable challenges confronting Pakistani authorities in their endeavor to effectively assess and collect taxes on capital gains arising from real estate transactions. A significant hurdle arises from the absence of formal registration of real estate interests until the legal finalization of property transactions. Consequently, transfers of real estate interests occurring prior to legal completion remain unrecorded, leading to a scenario where gains accrued by sellers through such transfers evade taxation.

To remedy this issue, the IMF has put forth a proposal advocating for the imposition of obligations on property developers to meticulously track and report all pre-legal completion transfers of real estate interests. Noncompliance with these obligations would attract penalties, and property developers might assume responsibility for any unpaid taxes if retrieval from the transferor proves futile.

In tandem with efforts to fortify the taxation framework governing real estate capital gains, the IMF has recommended an expansion of the asset spectrum subject to capital gains taxation. This encompasses ensuring that burgeoning investment assets, such as cryptocurrencies, are encompassed within the ambit of capital gains taxation.

Of notable significance is the evolving stance of the Securities and Exchange Commission of Pakistan (SECP) regarding crypto regulation within the nation, as evidenced by a recent position paper. With Pakistan emerging as one of the foremost potential markets for cryptocurrencies, boasting a populace exceeding 212 million individuals, this paradigm shift carries substantial implications.

The SECP’s stance is underpinned by a ‘do-not-harm’ approach, characterized by a philosophy of allowing developments to unfold naturally. This approach acknowledges the dynamic nature of the financial landscape and underscores the imperative of fostering innovation. By embracing this approach, the SECP endeavors to strike a delicate balance, eschewing excessive regulation that could stifle innovation, while simultaneously addressing inherent risks within the crypto sphere. This signifies a willingness to embrace the opportunities heralded by cryptocurrencies, all the while maintaining regulatory oversight to safeguard investors’ interests and uphold financial stability.

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