IMF Urges Pakistan To Impose Cryptocurrency Taxes

The International Monetary Fund (IMF) is urging Pakistan to expand its tax base to include cryptocurrencies among the assets subject to taxation, as part of its final review of the $3 billion Stand-By Arrangement. The IMF recommends that the Federal Board of Revenue (FBR) broaden the scope of Capital Gains Tax (CGT) to cover cryptocurrencies.

In addition to cryptocurrencies, the IMF suggests a review of CGT slabs for real estate and listed securities to ensure comprehensive taxation of all gains, regardless of the duration of asset holding.

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Recognizing the challenges in taxing real estate transactions due to informal property registration processes, the IMF proposes measures such as obligating property developers to monitor and report all property transfers before registration, with penalties for non-compliance to deter unregistered property transfers. The lender also recommends removing provisions that exempt capital gains from taxation after a certain ownership period.

The IMF advises the federal government to avoid tax incentives, simplify individual tax rates, remove the distinction between salaried and non-salaried taxpayers, limit rate slabs to a maximum of four, and lower income thresholds for higher rate slabs. These steps, the IMF suggests, could increase revenue by 0.5 percent of GDP.

Furthermore, the IMF recommends taxing either pension contributions or benefits, eliminating deductions for voluntary payments to workers’ participation funds, withdrawing exemptions for pensions, and applying taxation using one of the alternatives outlined.

Short and medium-term recommendations also include eliminating zero-rating for all goods except exports, bringing all other goods to the standard rate, restricting exemptions to the supply of residential property (except first sale), and aligning taxation of fuel with regional and emerging economy averages.

The IMF suggests removing reduced rates under the Eighth Schedule, bringing goods under this schedule to the standard rate, and maintaining a single reduced rate of 10 percent for essentials such as food staples, education, and health items.

Additionally, the IMF advises removing compliance-related distortionary tax policy changes, including the elimination of minimum taxes and surtaxes, as well as the Ninth and Tenth Schedules.