The International Monetary Fund (IMF) is urging Pakistan to expand its tax net to cover previously untapped areas, according to a local press outlet. One of the targeted market segments is cryptocurrencies, which have been, funnily enough, banned (practically speaking) in the country. The international lender requires that the Pakistani government extract more money from taxpayers before it qualifies for a bailout.
The Middle Eastern country has experienced a tumultuous year in 2023 with a severe political crisis and the economy on the verge of default. By the end of last year, inflation soared to 29 percent, the highest rate ever, forcing the State Bank of Pakistan to limit imports and increase interest rates. Stuck in a political deadlock and desperate for help, Pakistan has placed its hopes on the IMF, but there are a few milestones to pass before enjoying a payout.
IMF wants Pakistan to put a Capital Gains Tax on crypto investments
The institution put forward several short- and medium-term "recommendations" likely to be included in the upcoming bailout package. They would mandate the Federal Board of Revenue (FBR) to incorporate a series of new tax measures into the FY2024-25 budget through the finance bill.
The requirements include expanding the scope of Capital Gains Tax (CGT) to cover cryptocurrency investments. The IMF has also advised reevaluating CGT tax brackets for real estate and listed securities to achieve comprehensive taxation of all profits, regardless of an asset holding period.
Moreover, the IMF has asked for more stringent oversight measures, such as obligating property developers to monitor and report all transfers before completing and registering property titles – an attempt to curb land speculation. Failure to comply would result in penalties.
Is crypto legal in Pakistan at all?
The IMF requirements pose a legal conundrum, considering the legal status of cryptocurrencies in Pakistan is highly ambiguous. As of April 2018, the SBP advised financial institutions to cease trading, promoting, or processing cryptocurrencies. This move essentially prohibited banks and payment providers from handling services related to digital currencies.
As a result of the anti-crypto course, local exchanges have had difficulties in accessing banking accounts and related services. There has also been uncertainty regarding taxation, consumer protection, and solving legal issues for individuals and businesses using cryptocurrencies.
Recently, in another tightening measure, the Minister of State for Finance and Revenue, Dr. Aisha Ghaus Pasha, stated that cryptocurrencies would never be legalized in Pakistan, citing strict conditions imposed by the Financial Action Task Force (FATF). Earlier, in January 2022, the SBP announced it planned to put a ban on crypto.
Nevertheless, anti-crypto policies fail to discourage Pakistanis from leveraging virtual currencies to hedge their assets against the devaluing rupee. Apparently, the IMF has recognized the crypto market's capabilities to evade government sanctions and aims to harness it for tax-related income.
