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Pakistan Post-Election: High Interest Rates and Crypto Taxation for IMF $3B Aid

Last Updated March 19, 2024 9:50 AM
Shraddha Sharma
Last Updated March 19, 2024 9:50 AM
By Shraddha Sharma
Verified by Peter Henn

Key Takeaways

  • Following recent elections, Pakistan’s government faces crypto tax demand from the IMF.
  • Pakistan’s central bank maintains a record-high interest rate with inflation risks looming
  • Recommendations by the IMF aimed at broadening Pakistan’s tax base.

Pakistan concluded its controversial general elections in 2024 and the government led by Prime Minister Shehbaz Sharif, in coalition with the Pakistan Muslim League-Nawaz (PML-N) and support from the People’s Party of Pakistan (PPP), is faced with the nation’s dire economic situation.

The International Monetary Fund (IMF) has laid down conditions for a $3 billion bailout, one of which includes the imposition of taxes on cryptocurrencies. While the aim is to broaden Pakistan’s tax base, inflation risks persist as tensions rise with Afghanistan and the Taliban.

IMF’s List of Recommendations

The IMF is engaging with Pakistan and has included a series of recommendations for the country’s fiscal policy and economic stability.

The international body has highlighted the need to maintain tight monetary policies to counter inflation, reported  Bloomberg. Therefore, Pakistan’s apex bank has decided to keep the key interest rate unchanged at a record 22%.

A major recommendation involves expanding the scope of Capital Gains Tax (CGT). The IMF has advised bringing cryptocurrencies into the tax net while reworking taxation slabs for real estate and listed securities.

Crypto will be in focus here as Statista  expects the market’s revenue to reach $19.6 million in 2024, with a projected annual growth rate of 16.04%. It will bring in a total of $35.5m by 2028. The average revenue per user is estimated at $4.70 in 2024. Pakistan’s current tax system does not explicitly cover cryptocurrencies, a gap the IMF recommends closing to leverage potential revenue streams.

Pakistan in Want for Economic Stability

The IMF’s suggestions  extend beyond digital currencies amid rising tensions with Afghanistan. For instance, it is trying to target the broader issue of capital gains taxation.

The approach seeks to regulate the real estate sector more strictly. The proposal asks that property developers track and report all transactions before the completion and registration of property titles.

By eliminating loopholes that allow for untaxed capital gains after a certain period, the IMF aims  to enhance Pakistan’s tax collection efficiency. For instance, unfinished properties don’t fall under the tax ambit. 

Overall, The IMF’s aid under the Extended Fund Facility (EFF) will require amendments to its existing acts, consider privatization for efficiency, agree on a credit cap, and expand the taxation base.

The State Bank of Pakistan data also revealed in January 2023 that the country spent more than it made, creating a deficit of $167m. Dawn  reported that in January 2024, this deficit got bigger, going up to $269m.

What is Next?

Pakistan’s new government is in want of economic recovery and stability necessitating decisive actions. The IMF’s recommendations include the inclusion of cryptocurrencies in the tax regime, broadening the nation’s tax base, and ensuring a sustainable fiscal environment.

Reports say that Pakistan has not reached a consensus with the IMF in ongoing loan negotiations at press time. The government’s willingness to implement these measures will be crucial for deciding the country’s long-term economic health.

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