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Cryptocurrency is on a high in Pakistan! With its growing adoption, the government is realizing the need to regulate it. Pakistan is one of the emerging markets in Southeast Asia with a population of approximately 250 million. The country’s population majorly is below the poverty line and the people are hopeful that good times are coming. Meanwhile, Bitcoin adoption has increased in Pakistan even without any regulated exchange in existence. Due to widespread acceptance of cryptocurrency in Pakistan, crypto regulations seem necessary in the region.
In this report by Coinpedia, we will uncover the crypto regulatory scenario in Pakistan in 2024.
Crypto Adoption In Pakistan
Crypto adoption, including Bitcoin, has increased significantly in Pakistan, even though there is no existing regulatory framework here. People use peer-to-peer services like Binance, Paxful, and other OTC trade methods in Pakistan. In 2020, Pakistan’s Securities and Exchange Commission (SECP) released a paper quoting the potential approaches for regulating crypto in the country. The State Bank of Pakistan released a public notice which states that cryptocurrencies are neither recognised as a legal tender nor has SBP authorized or licensed any individual or entity for the issuance or operations in any virtual currencies.
Pakistan ranked sixth in global crypto adoption index and the crypto market in Pakistan is estimated at $18-25 billion despite regulatory challenges.
The Bitcoin adoption can also be explained by the fact that there is yearly inflation exceeding 25% and has been worsening for the past few years amid the political mess.
There is a potential in Pakistan for the mainstream adoption of cryptocurrencies. The country is one of the emerging markets in Southeast Asia!
The existence of communities like “Bitcoin Pakistan” suggests that the nation has crypto enthusiasts who are accepting the crypto revolution willingly.
Is Crypto Legal in Pakistan?
Cryptocurrencies like Bitcoin are not officially regulated in Pakistan, however it is not illegal.
As of 16 January 2021, the State Bank of Pakistan has not authorized any individuals or organizations to carry out the sale, purchase, exchange, and investment of virtual currencies, coins, and tokens. There have been a number of arrests by the Cyber Crime Wing of the Federal Investigation Agency (FIA) related to the mining of bitcoin and other cryptocurrencies. The arrests were made under money-laundering charges.
Despite the many disputes around virtual currencies, prominent Pakistani bloggers and social media influencers are publicly involved in trading bitcoin and regularly publish content in the favor of regulating cryptocurrencies.
In December 2020, the Khyber Pakhtunkhwa government became the first province in Pakistan to pass a resolution to legalize cryptocurrency in the country.
In May 2023, Pakistan announced a ban on crypto and blockchain related activities. It wanted to prevent illegal digital currency transactions and comply with the Financial Action Task Force (FATF). It was partly in response to concerns over terrorism financing and money laundering.
The government of Pakistan announced that crypto will never be legal in the country in May 2023. The SBP first revealed its plan to ban crypto in January 2022.
Pakistan’s minister of finance reportedly said crypto cannot be legalized in the nation due to conditions set by the global money-laundering watchdog FATF.
Legal Status Overview
As we know, blockchain-based and crypto related activities are not supported in Pakistan by the regulatory agencies. The latest ban has criticized a few crypto-related activities. Let us have a look at the legal status of the following crypto essentials:
BitcoinBanned/ IllegalNFTsIllegalMiningIllegalTradingIllegalDeFiAllowed
Taxation
Currently there is no tax on holding or trading crypto assets in Pakistan! However, there have been several proposals.
The FPCCI proposed a tax for converting crypto to Pakistani rupees, a 5% tax on encashing crypto held as deposits in foreign exchange accounts, and a 10% tax on encashing crypto held as deposits in Roshan digital accounts. Under the proposed law, crypto gains shall be charged as per Section 37A of Income tax ordinance, 2001, and should be defined as “securities”, a 15% tax on profits from crypto trading is being put forth.
The proposed law covers a tax rate of 15% on gains from crypto sale, 5% tax on encashment and deposits in Foreign exchange accounts, and 10% tax on the crypto assets which are encashed and kept in Roshan digital accounts.
Future Prospects and Challenges
As per our research, the main factor which affects the crypto scenario in Pakistan is that its principles contradict those of Islam as it is an element of uncertainty. Due to no central authorities or intermediaries , there are possibilities of fraud. The high volatility of crypto is also classified as “gharar” (uncertainty) in the Islamic finance system.
Pakistan has been doing well in terms of crypto adoption despite the illegal status. The crypto enthusiasts are into exploring new possibilities associated with the cryptocurrency. Debates and discussions are still ongoing in Pakistan about the crypto legalization. We are optimistic about a better crypto approach by the Pakistani government in future.
Conclusion
The recent crypto adoption report shows that the Bitcoin adoption in Pakistan has increased significantly even without any regulatory framework. People use peer-to-peer services like Binance and other OTC trade methods to acquire Bitcoin in Pakistan. The country ranks among the top countries in Bitcoin adoption rate in emerging markets in the developing world. The regulatory framework is getting evolved gradually in Pakistan as the acceptance is gaining pace!