IMF demands to include cryptocurrency, real estate business in tax net

Islamabad: The International Monetary Fund (IMF) has also asked Pakistan to expand the scope of capital gains tax, bring cryptocurrencies into the tax net and review the slabs of listed securities.

The IMF has called for widening the scope of capital gains tax to bring cryptocurrencies into the tax net, it has asked for a review of the slabs of real estate as well as listed securities to ensure that instead of holding assets for any period, all profits can be taxed.

The IMF has also asked the Federal Bureau of Revenue (FBR) to mandate property developers to track and report all transfers before completion and registration of property titles. Certain penalties may be imposed if a property developer fails to comply.

Through this recommendation, the IMF has asked the FBR to bring the growing business of sale and purchase of various plot files in the housing schemes into the tax net. These IMF recommendations may form part of the upcoming bailout package under the Extended Fund Facility. And the FBR may commit to make it a part of the next budget for 2024-25 through the Finance Bill.

The IMF's technical assistance report said the Pakistani authorities faced challenges in assessing and collecting tax on capital gains arising from the disposal of interests in real estate or on the sale of property.

Interests in real estate are generally not registered until the legal completion of the property, thus any transfer of the real estate interest from the initial purchaser to the next before the legal completion of the property or any transfer of real estate thereafter is not currently registered in any of the records.

Consequently, the profit realized by the seller through such transfer of profits is an unrealized property which is generally not taxed.

The IMF has proposed measures to strengthen capital gains taxation.

One way is to broaden the types of assets subject to capital gains tax by ensuring that new types of investment assets such as cryptocurrencies are covered by capital gains tax.

The IMF has recommended amendments to the meaning of ‘personal movable property’ in Section 37(1) of the Income Tax Ordinance to include a catch-all (suitable for any purpose or possessing any property) be included in the category which qualifies as investment rather than stock in trade or assets which depreciate or amortize for the purpose of Income Tax Ordinance (ITO).

The IMF has called for a review of the tax slabs on real estate and listed securities to ensure that all such profits are taxed at the appropriate rate for capital (as opposed to labor) income and this provision Abolish that capital gains are not taxed once the underlying assets are held for a specified period.