The International Monetary Fund (IMF) is pushing for Pakistan to expand its tax base to cover a broader range of assets, specifically targeting cryptocurrencies.
According to sources familiar with the matter, as part of its ongoing final review of the $3 billion Stand-By Arrangement, the IMF has recommended that the Federal Board of Revenue (FBR) take steps to bring cryptocurrencies under the tax umbrella by widening the scope of Capital Gains Tax (CGT).
In addition to cryptocurrencies, the IMF has advised a reassessment of CGT brackets for real estate and listed securities to ensure that all gains are comprehensively taxed regardless of the duration of asset ownership.
The challenges faced by Pakistani authorities in taxing real estate transactions, attributed to informal property registration processes, were underscored. To address this issue, the IMF proposed requiring property developers to monitor and report all property transfers prior to registration, with penalties imposed for non-compliance to deter unregistered property transfers.
Furthermore, the lender recommended the removal of the provision that currently exempts capital gains from taxation after a certain period of ownership. These suggestions may potentially become part of the upcoming bailout package under the Extended Fund Facility (EFF), with the FBR expected to integrate them into the forthcoming budget for FY2024-25 through the finance bill.
Additionally, the IMF proposed taxing either pension contributions or benefits, abolishing the deduction of voluntary payments to workers’ participation funds, eliminating pension exemptions, and implementing taxation using one of the suggested alternatives.
As for short to medium-term recommendations, the IMF proposed eliminating all zero-rating (Fifth Schedule) except for exports, and bringing all other goods to the standard rate. Moreover, it suggested restricting exemptions (Sixth Schedule) to only the supply of residential property, except for first sales, and bringing all other goods to the standard rate. This would also align fuel taxation with the regional and emerging economy averages.
The IMF also recommended abolishing reduced rates under the Eighth Schedule and aligning goods therein with the standard rate, except for a few essentials such as food staples and crucial education and health items, which the IMF proposed taxing at a single reduced rate of 10 percent.
Furthermore, it recommended the removal of all compliance-related distortionary tax policy changes, including the elimination of minimum taxes and surtaxes, as well as the removal of the Ninth and Tenth Schedules.
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