IMF wants cryptocurrencies brought into tax net

ISLAMABAD: The IMF has recommended the FBR for an expansion in the scope of Capital Gains Tax (CGT) by bringing cryptocurrencies into the tax net.

It also asked for reviewing slabs of real estate as well as listed securities to ensure all gains are taxed, instead of holding assets for any time periods.

The IMF also asked the FBR for binding property developers to track and report all transfers prior to completion and registration of property titles.

If any property developers fail to comply, certain penalties might be imposed. Through this recommendation, the IMF has asked the FBR to bring rampant business of buying and selling files of different plots in the housing schemes into tax net.

These recommendations of the IMF might become part of the upcoming bailout package under the Extended Fund Facility (EFF) and FBR might be bound to make it part of the next budget for FY2024-25 through the finance bill.

According to the IMF technical assistance report, Pakistani authorities have experienced challenges in assessing and collecting tax on capital gains arising from disposal of interests in real estate. Interests in real estate are generally not formally registered until legal completion of the property. As such, transfer of real estate interest from the initial purchaser to the next or any subsequent transfer of real estate prior to the legal completion of property, is not currently captured in any system of record.

Consequently, gains derived by a seller through such transfer of interest is an uncompleted property are typically not taxed. “In this regard, considering an obligation on property developer to track and report all transfer of interest in real properties prior to completion and registration of property title and to impose penalties for noncompliance including secondary liability for any tax payable. This means that liability to pay owed by the transferor or any transfer gain will become responsibility of the property developer, if such tax cannot be recovered from the transferor.

The IMF has proposed measures to strengthen the taxation of capital gains. One way is to broaden the types of assets subject to capital gains taxation by ensuring that new types of investment assets such as cryptocurrencies are within the scope of capital gains taxation. The IMF also asked for capital gains on real properties and listed securities are subject to tax regardless of the duration of ownership.

The IMF has recommended to bring amendments to the meaning of “personal moveable property” in Section 37(1) of the Income Tax Ordinance to include catch-all category comprising any property capable being held as an investment, not being stock in trade or assets that depreciate or amortise for the purpose of Income Tax Ordinance (ITO).

The IMF asked for reviewing the tax slabs on real estate and listed securities and make sure that all such gains are taxed at an appropriate rate for capital (as opposed to labour) income and eliminate the provision that the capital gains are untaxed once the underlying assets has been held for a certain period of time.