Crypto Tax Debate: Pakistan and IMF Wrangle Over Capital Gains Tax Implementation

• IMF advises Pakistan to expand its tax net to cover cryptocurrencies and real estate gains for increased revenue.

• Proposed measures include taxing gains from cryptocurrency investments and tightening regulations on real estate transactions.

The International Monetary Fund (IMF) has issued a decisive call for Pakistan to implement capital gains tax (CGT) on cryptocurrency investments as a prerequisite for accessing a $3 billion bailout package. This requirement was put forth during discussions regarding a stand-by arrangement (SBA) totaling $3 billion. The IMF’s recommendation underscores a broader push for fiscal reforms in Pakistan’s economic landscape.

Negotiations between Pakistan and the IMF on a $3 billion standby arrangement will conclude today. IMF asks Pakistan to impose capital gains tax on cryptocurrency investments. If negotiations go well, the IMF will pay out the remaining $1.1 billion or so of the bailout package.…

— Wu Blockchain (@WuBlockchain) March 18, 2024

The IMF’s directive specifically targets Pakistan’s Federal Board of Revenue (FBR), urging them to enforce taxes on capital gains arising from cryptocurrency investments. This action aligns with the IMF’s plan to diversify Pakistan’s income sources and maintain budgetary stability. Pakistan is recommended by the IMF to reassess its tax regulations about listed securities and real estate, in addition to cryptocurrency.

The IMF’s plan includes changes to real estate taxation and taxing cryptocurrencies. If this were to happen, owners would still have to pay yearly capital gains taxes, whether or not the property is sold. In addition, real estate developers may be subject to increased regulatory oversight and strict reporting obligations, with severe consequences for non-compliance.

Implications for Pakistan’s Fiscal Policy

According to local media, Pakistan’s upcoming bailout package will include the IMF’s recommendations, namely concerning the Extended Fund Facility (EFF). Consequently, the annual budget for 2024–2025 may incorporate a comprehensive framework for taxing cryptocurrency capital gains, marking a significant departure from Pakistan’s previous stance on cryptocurrency legislation.

The $3 billion IMF bailout package addresses Pakistan’s hyperinflated fiat economy, reducing the possibility of debt default. Natural disasters, governance issues, and geopolitical tensions are some of the causes of this economic volatility. The ongoing IMF review, spanning four days, commenced on March 14, with a disbursement of approximately $1.1 billion contingent upon Pakistan’s compliance with the IMF’s conditions.

Additionally, the IMF has suggested amendments to existing tax legislation to broaden the definition of “personal moveable property” and eliminate provisions that exempt capital gains from taxation after a certain period of asset ownership. By revising tax regulations to include a broader spectrum of assets and guaranteeing the proper taxation of profits, Pakistan can potentially augment its tax earnings derived from capital gains.

Crypto Community Response

The IMF’s call for taxing crypto capital gains comes amidst conflicting sentiments within Pakistan’s crypto community. Notably, the call for taxing crypto capital gains comes nearly one year after Aisha Ghaus Pasha, the minister of state for finance and revenue, declared that the country would never legalize crypto trading, as reported by Crypto News Flash. However, this decision has faced opposition from the crypto community in Pakistan, who have refuted the government’s stance based on the IMF’s recommendation.

The officials has been destroying Pakistan in the name of #FATF & #IMF. Whatever happens in this country, according to the officials, it’s either IMF’s fault or FATF’s.
May ALLAH soften their hearts for the country and common man. Ameen pic.twitter.com/ymHJ2sqbb6

— Crypto Pakistan 🇵🇰 (@Crypto_Pakistan) May 17, 2023

In a separate development, Pakistan has unveiled ambitious plans to harness artificial intelligence (AI) as a catalyst for economic growth. The country aims to produce one million AI-trained IT graduates by 2027, signaling a strategic shift towards technological innovation. The national AI policy draft outlines 15 targets from 2023 to 2028, reflecting Pakistan’s commitment to leveraging AI for societal advancement.

Pakistan intends to establish a National AI Fund utilizing resources and funds from the Ministry of IT and Telecom to support its AI initiatives. This initiative underscores Pakistan’s proactive approach towards fostering innovation and technology-driven solutions. By leveraging AI, Pakistan seeks to address various socio-economic challenges and position itself as a global hub for technological innovation.