The International Monetary Fund (IMF) has recently put forward recommendations to the Federal Board of Revenue (FBR), urging an extension of the Capital Gains Tax (CGT) to encompass cryptocurrencies. This directive, disclosed in a report by The News on Monday, underscores the ongoing discussions between the IMF and Pakistani authorities concerning the $3 billion stand-by arrangement (SBA).
Review Talks and Financial Tranche Release
The review talks, initiated last Thursday, are pivotal for unlocking the final tranche of approximately $1.1 billion secured by Islamabad under a critical rescue package last summer. This financial injection forestalled a sovereign debt default, highlighting the significance of the ongoing negotiations.
Widening Taxation Scope
During these deliberations, the IMF underscored the necessity to reassess the tax structure, advocating for the inclusion of real estate and listed securities to ensure comprehensive taxation of gains. This entails taxing all gains, irrespective of asset holding duration, thereby closing loopholes in the current tax regime.
Regulatory Measures on Real Estate Transactions
Moreover, the IMF recommended stringent regulatory measures on real estate transactions. This includes obligating property developers to meticulously track and report all transfers preceding property title completion and registration. Failure to comply may result in penalties, aimed at curbing the prevalent practice of trading property files within housing schemes, which currently evade taxation.
Budgetary Implications and IMF Directive Integration
These recommendations are poised to influence the forthcoming bailout package under the Extended Fund Facility (EFF), potentially binding the FBR to incorporate them into the fiscal policy for FY2024-25 via the finance bill.
Challenges in Tax Collection on Real Estate
The IMF’s technical assistance report highlights challenges faced by Pakistani authorities in assessing and collecting taxes on capital gains from real estate transactions. Currently, gains from uncompleted property transfers often slip through the taxation net due to registration formalities occurring post-property completion.
Strengthening Capital Gains Taxation
To address these challenges, the IMF has proposed measures to bolster capital gains taxation. This includes broadening the range of taxable assets to cover emerging investment avenues like cryptocurrencies. Additionally, the IMF advocates for taxing capital gains on real estate and listed securities regardless of ownership duration, thereby ensuring equitable taxation.
Legislative Amendments for Enhanced Taxation
Furthermore, the IMF recommends legislative amendments to redefine “personal moveable property” to encompass a broader spectrum of investment assets. This includes assets held for investment purposes, excluding those subject to depreciation or amortization, aligning with the Income Tax Ordinance (ITO).