19/03/2024
Title: "The IMF and Pakistan's Crypto Taxation Debate"
During my recent mission in Pakistan, I gave a groundbreaking conference on "Tokenization of Pakistan Hydro Power Assets in Pakistan: A Revolution in Project Finance?".
Since then, I have published an article in and created a small team to work on a proposal.
Here's the link to my article:
https://www.linkedin.com/pulse/tokenization-hydropower-assets-pakistan-revolution-project-amoussou-mqjie/
Today, I came across news headlines about the IMF pressuring Pakistan to impose taxation, including capital gains on cryptocurrencies, with the expectation of raising at least 3 billion USD.
My conference and my article on "Tokenization" suddenly appear aligned with the IMF loan policy for Pakistan and are timely and visionary!
What is the rationale for pressing a country to impose taxation on crypto activities when the country in question has no laws and regulations on digital assets?
In other words, what is the tax on an asset class that is not even defined by Pakistani law?
How will Pakistani companies record such assets on their balance sheets for tax purposes, and under what categories of taxable events will retail investors fill out their tax returns?
?
Simply put, what the IMF is suggesting to Pakistan is the current US model of "regulation by enforcement" and "taxation by extortion."
In the bid to stabilize Pakistan's struggling economy and secure a crucial $3 billion bailout package from the International Monetary Fund (IMF), the country is being urged to impose stricter taxation measures on capital gains from cryptocurrency investments and real estate transactions.
Pakistan is finding itself at a crucial crossroads, grappling with the question of cryptocurrency taxation amid mounting pressure from international financial institutions such as the IMF.
I've been closely monitoring Pakistan's journey in this arena.
The IMF's insistence on Pakistan imposing taxation on cryptocurrency capital gains, among other measures, to secure a much-needed $3 billion bailout package, raises valid concerns about the approach to regulation and taxation.
?
At the heart of the matter lies a fundamental question: Is the imposition of taxation on an asset class still in regulatory uncertainty the most prudent course of action?
The IMF's push seems to lean towards a replication of the "regulation by enforcement" and "taxation by extortion" models, akin to those seen in the United States.
It's like a physician prescribing a new cure never tested to a patient!
This approach risks overlooking the nuanced challenges faced by nations like Pakistan, which are still navigating the uncharted waters of digital asset regulation.
Taxation without clear regulatory frameworks not only raises questions of fairness and transparency but also presents practical hurdles to enforcement and compliance.
Compliance can only work according to pre-existing laws and regulations.
Furthermore, the imposition of such measures could inadvertently stifle innovation and deter potential investors from engaging with Pakistan's burgeoning crypto market.
Rather than fostering growth, a heavy-handed approach to taxation may hinder the very economic momentum that Pakistan seeks to cultivate by embracing the tokenization of its rich hydropower resources for instance, without creating debt!
It's imperative to approach the issue with nuance and foresight. Pakistan's economic landscape is evolving, and its policy decisions must reflect a balanced consideration of both short-term imperatives and long-term sustainability.
While the IMF's recommendations undoubtedly carry weight, Pakistan's policymakers need to engage to explore alternative access to capital.
The debate must take into account the unique dynamics of the country's financial ecosystem. Collaborative efforts between government stakeholders, industry experts, and international partners can pave the way for a more informed and inclusive approach to taxation and regulation.
But pressing for taxation without assisting the country in adopting regulations on digital assets exposed the IMF's own limitations in understanding the implications of its own recommendations for developing countries and nations in transitions when it comes to how digital assets intersect with regulation and taxation to drive sustainable economic growth for Pakistan and its people.
