The International Monetary Fund (IMF) has urged the Federal Board of Revenue (FBR) to broaden the scope of Capital Gains Tax (CGT) in Pakistan by including cryptocurrencies.
This recommendation comes amidst ongoing review discussions between the IMF and Pakistani authorities regarding a $3 billion stand-by arrangement (SBA). The four-day review, commencing last Thursday, aims to secure the final tranche of approximately $1.1 billion, which Islamabad secured last summer to prevent a sovereign debt default.
During these discussions, the IMF emphasized the need to review tax structures for real estate and listed securities to ensure comprehensive taxation of all gains, regardless of asset holding periods.
Furthermore, the IMF proposed that property developers should be mandated to monitor and report all transfers before property titles are finalized and registered. Failure to comply could result in penalties. This measure aims to bring under the tax net the prevalent practice of trading property plot files in housing schemes.
These recommendations are expected to be integrated into the upcoming bailout package under the Extended Fund Facility (EFF), potentially becoming part of the FY2024-25 budget through the finance bill.
The IMF’s technical assistance report highlighted challenges faced by Pakistani authorities in assessing and collecting taxes on capital gains from real estate transactions. Currently, gains from uncompleted property transfers are often untaxed due to lack of formal registration until property legal completion.
To address this, the IMF suggested obligating property developers to track and report all pre-completion property transfers, with penalties for non-compliance. This would shift tax liabilities to developers if transferors fail to pay taxes.
Additionally, the IMF recommended broadening the types of assets subject to capital gains tax to include cryptocurrencies. It also proposed taxing capital gains on real estate and listed securities regardless of ownership duration.
The IMF advised amending tax slabs for real estate and listed securities to ensure appropriate taxation rates for capital income, eliminating provisions that exempt capital gains after certain ownership periods.
These measures aim to strengthen capital gains taxation in Pakistan and improve revenue collection mechanisms.
