The International Monetary Fund (IMF) is urging Pakistan to expand its tax base to include cryptocurrencies and broaden the scope of its Capital Gains Tax (CGT) as part of its final review of the $3 billion Stand-By Arrangement.
In its recommendations to the Federal Board of Revenue (FBR), the IMF underscored the importance of taxing gains from cryptocurrencies and advised a comprehensive review of CGT slabs for real estate and listed securities to ensure all gains are taxed regardless of asset holding duration.
Challenges in taxing real estate transactions were highlighted, particularly due to informal property registration processes. The IMF proposed measures such as obligating property developers to monitor and report all property transfers before registration, with penalties for non-compliance aimed at curbing unregistered property transfers.
Additionally, the IMF recommended removing provisions that currently exempt capital gains from taxation after a certain ownership period.
These recommendations may be incorporated into the forthcoming bailout package under the Extended Fund Facility (EFF), with the FBR expected to include them in the upcoming budget for FY2024-25 through the finance bill.
Furthermore, the IMF suggested taxing either pension contributions or benefits, eliminating deductions for voluntary payments to workers’ participation funds, withdrawing exemptions for pensions, and applying taxation using specified alternatives.
In the short to medium term, the IMF advised eliminating all zero-rating except for exports and bringing all other goods to the standard rate. It also proposed restricting exemptions to only the supply of residential property (excluding first sales) and bringing all other goods to the standard rate. This would align the taxation of fuel with regional and emerging economy averages.
Recommendations also included removing reduced rates for certain goods and bringing them to the standard rate, except for a few essentials like food staples and crucial education and health items, which would be taxed at a single reduced rate of 10 percent.
The IMF further suggested eliminating compliance-related distortionary tax policy changes, including minimum taxes, surtaxes, and the Ninth and Tenth Schedules.
