Pakistan's "Virtual Assets Act 2026" Interpretation: Regulatory Framework and Compliance Highlights

FinTax

1 Introduction

In March 2026, Pakistan’s National Assembly passed the “Virtual Assets Act, 2026” (TheVirtual AssetsAct, 2026) (hereinafter referred to as the “Act”), legally establishing the Pakistan Virtual Assets Regulatory Authority (Pakistan Virtual Assets Regulatory Authority, PVARA) as the country’s dedicated regulator for virtual assets. The Pakistani government’s stance toward crypto assets has shifted from a blanket ban to proactive exploration. The passage of the Act marks Pakistan’s formal entry into a new era of compliant regulation, and sets an important benchmark for crypto-asset regulation across South Asia. This article will review the core content of the “Virtual Assets Act, 2026,” introduce Pakistan’s crypto-asset taxation and regulatory framework, analyze the significance of the Act’s enactment for Pakistan, and provide a compliance reference for market participants.

2 Core Content of the Act

Pakistan previously issued the “Virtual Assets Ordinance, 2025” (The Virtual Assets Ordinance, 2025) on July 8, 2025. The Ordinance has already established a relatively comprehensive legal framework for the regulation of virtual assets in Pakistan. The “Virtual Assets Act, 2026” converts this Ordinance from a “temporary law” into formal legislation, and refines the specific content, rather than largely creating new provisions.

The Act consists of twelve chapters and covers licensing market entry for virtual asset service providers, segregation of customer assets, anti-money laundering and counter-terrorist financing, dedicated regulation of stablecoins and RWAs, market conduct rules, administrative penalties and criminal accountability, among other matters—forming a comprehensive regulatory chain ranging from license issuance to regulatory enforcement,

2.1 Regulatory Authority: Establishment of PVARA and Its Powers

Chapter 2 of the Act (Article 6) declares the establishment of the Pakistan Virtual Assets Regulatory Authority (PVARA). It is set up as an autonomous regulatory institution with perpetual existence and an independent legal-person status. Its core powers mainly include (Articles 7–9): being responsible for license approval, conduct supervision, and prudential oversight of virtual asset service providers and issuers; assessing and classifying digital assets in accordance with the “substance over form” principle to determine their regulatory applicability; formulating and implementing requirements related to business conduct and measures related to anti-money laundering, counter-terrorist financing, and the prevention of other illegal activities; imposing administrative sanctions on non-compliant entities, including revoking licenses and even referring matters for criminal prosecution; reaching cooperation or mutual assistance arrangements with domestic and overseas regulatory authorities to promote information sharing and coordinated actions, etc.

2.2 Market Access: Licensing System

Chapter 3 of the Act provides for the issuance of licenses to virtual asset service providers. The core provisions include (Articles 18–23):

（1）Regulated scope of services: including advisory services, brokerage-dealer services, custodial services, exchange services, lending services, derivatives services, asset management services, transfer services, issuance services, and mining-related services.

（2）Application process: Applicants must first apply to PVARA for a No-Objection Certificate, and after completing company registration, apply for the formal license.

（3）Fit and proper criteria: Controllers, founders, the CEO, directors, and other key individuals must all meet the fit and proper criteria established by PVARA, and the criteria are of a continuing nature.

（4）License types: PVARA may issue formal licenses, and where appropriate may issue temporary licenses or licenses limited to a specified scope.

（5）Public register: PVARA maintains and publishes a list of licensees on its official website, specifying names, license numbers, types of permitted services, and the current regulatory status.

2.3 Regulatory Principles: Substance Over Form

Chapter 1 of the Act defines virtual assets (Articles 2–3) as “a digital value representation that can be digitally traded or transferred and is used for payment or investment purposes, but does not include the digital form of legally tender currency, securities, or other financial assets regulated by other laws that are represented, issued, or transferred using distributed ledger technology.” Based on the wording of the provisions, virtual assets are clearly not legally tender. At the same time, the basis for evaluating, determining, and classifying regulated virtual assets, regulated virtual asset service providers, or qualified service providers lies in their substantive characteristics, fundamental functions, methods of use, or economic impact—not whether they are named so or structured so. PVARA is also granted statutory authority to conduct such assessments and determinations and to consult with other relevant regulators on the matter. As a result, in scenarios such as asset characterization and determining license eligibility, the Act explicitly sets out the regulatory principle of “substance over form.”

2.4 Core Obligations and Legal Liability

The Act sets out general obligations for virtual asset service providers, mainly including: (1) operating under a license and continuously fulfilling relevant obligations. For example, maintaining the statutory minimum paid-in capital and financial resources, submitting returns and financial statements on a regular basis, obtaining prior approval for material changes in control rights or business operations, etc.; (2) segregating customer assets by storing customer assets separately from its own assets in separate accounts, and without obtaining valid written consent, not re-hypothecating, lending, pledging, or creating other forms of security; implementing key management control measures that meet applicable standards; (3) fulfilling anti-money laundering and counter-terrorist financing obligations, including customer due diligence, suspicious transaction reporting, record-keeping obligations, and so on. In addition, the Act also includes special provisions for business scenarios such as the issuance of fiat-collateralized tokens (instruments) and asset-collateralized tokens (instruments), virtual asset custody services, mining services, and other related activities.

Chapter 10 further specifies types of unlawful conduct and their penalties (Articles 54–61). For example, providing virtual asset services without authorization may lead to up to 5 years of imprisonment and a fine of 50 million rupees (approximately RMB 1.15 million). When there are systemic threats, market manipulation, fraud, network security vulnerabilities, or other risks that endanger customer or market integrity, the regulatory authority may issue orders to temporarily suspend specific services or freeze related assets. In addition to criminal prosecution and the regulatory authority’s exercise of emergency intervention powers, violations of the Act may also trigger administrative sanctions such as fines and revocation of licenses.

3 Pakistan’s Crypto-Asset Taxation and Regulation

3.1 Evolution of Crypto Regulation

Pakistan’s crypto-asset regulation has followed a clear evolution path from a full ban to gradual liberalization. In 2018, the State Bank of Pakistan issued an order prohibiting financial institutions from participating in virtual currency transactions, placing crypto assets in a legal gray area. During this phase, there was no dedicated legislation, and private trading largely took place through informal channels. With the development of global crypto markets and the increasing domestic demand for digitalization, an absolute ban became unable to accommodate development needs. In 2023, the State Bank launched feasibility research on a central bank digital currency. In 2024, the government initiated systematic research on the application of stablecoins and RWAs, accumulating practical experience for subsequent legislation. During this phase, the regulatory stance shifted from a “one-size-fits-all ban” to a pragmatic route of “research and regulation.” In 2025, Pakistan’s Crypto Currency Committee (PCC) was formally established, promoting institutionalized development of the crypto industry at the government level. In July 2025, the “Virtual Assets Ordinance, 2025” first established a relatively comprehensive virtual asset regulatory framework. In March 2026, the “Virtual Assets Act, 2026” was formally passed. PVARA became a standing regulator, marking the official start of a new era of compliant operations.

3.2 Current Regulatory Landscape

Currently, Pakistan has formed a tiered regulatory framework led by the Pakistan Virtual Assets Regulatory Authority (PVARA), with the State Bank (SBP) and the Securities and Exchange Commission (SECP) jointly participating. Specifically, the Act provides that PVARA assumes core responsibilities such as licensing, regulation, and supervision of virtual assets and virtual asset service providers, using requirements such as anti-money laundering, counter-terrorist financing, and cybersecurity as key pillars, and emphasizing alignment with international standards. For tokens with securities characteristics, SECP retains its existing regulatory powers. For matters involving foreign exchange management, payment systems, and similar issues, coordination with SBP is required. In terms of allocation of regulatory powers, PVARA has rule-making authority, license issuance authority, administrative enforcement authority, and investigative authority. Article 9 of the Act explicitly grants PVARA the power to assess, determine, and classify any virtual asset and to consult with other institutions such as SBP and SECP. This means that whether an asset falls within the regulatory scope, and which authority regulates it, is determined in the cooperation and consultation among institutions based on the “substance over form” principle.

3.3 Taxation of Crypto Assets

On the tax side, Pakistan currently has not enacted separate legislation to tax crypto assets specifically; instead, it chooses to include them within existing tax regimes. The Act provides that virtual asset service providers must comply with the obligations stipulated in the “Income Tax Act, 2001,” as well as the rules and regulations issued by the Federal Board of Revenue (FBR). In the absence of dedicated rules, crypto-related gains may in practice be included in the existing income tax framework for “fact classification/characterization,” but the specific classification and tax calculation still depend on subsequent legislation, official interpretations, and the facts of each case. Public reporting also shows that FBR is conducting consultation and research on crypto taxation and legislative pathways.

4 Market Participants’ Compliance Responses

Although the “Virtual Assets Act, 2026” has only just come into effect, it has made Pakistan’s crypto regulatory landscape clearer than ever. For market participants intending to enter the Pakistani market, this is a policy window to refine and improve their compliance systems.

For issuers, on the one hand, they must assess whether the assets involved in the services are within the scope of virtual asset regulation, or are substantively included in other regulatory categories such as securities, based on the substantive characteristics, fundamental functions, methods of use, or economic impact of the relevant assets, in order to determine the regulatory framework applicable to them. On the other hand, if included within virtual asset regulation, they must meet different special regulatory requirements depending on the asset characteristics. Fiat-collateralized tokens must meet a 100% reserve support requirement and establish a redemption mechanism at face value. If issuing asset-collateralized tokens, they must set aside sufficient underlying asset reserves. Algorithmic tokens are prohibited from being issued.

For virtual asset service providers (VASP), it is worth noting that the Act sets transition period provisions for existing virtual asset service providers (Article 70). Service providers that had already started providing virtual asset services must complete the full license application within 6 months after the Act takes effect. Before the issuance of a formal license, they may continue to provide services during the application period by fulfilling the core obligations stipulated in the Act (especially anti-money laundering, counter-terrorist financing, and customer funds protection). Otherwise, they face the risk of being required to stop operations.

For investors, the public disclosure system of licensee registers provides a channel to verify the license status of service providers such as trading platforms and custodians. Before accepting services, investors can use PVARA’s official website to verify whether the service platform holds a valid license, thereby avoiding funding risks. In addition, investors also need to strengthen tax compliance awareness, monitor updates to tax policies related to crypto trading, and retain complete transaction records such as transaction time, counterparties, prices, and quantities for use in future reporting.

5 Conclusion

In summary, the significance of Pakistan’s “Virtual Assets Act, 2026” lies not in creating an entirely new regulatory system, but in legalizing and normalizing the previously established regulatory framework draft, and in pushing the real implementation of the legal provisions through PVARA as a dedicated institution. For both practitioners in Pakistan’s crypto market and investors, the clarification of the regulatory framework is both an opportunity and a challenge. Investors’ asset safety and data privacy are protected through institutional arrangements; practitioners can assess their compliance costs and business models within clearer regulatory boundaries. However, as Pakistan’s virtual asset regulation moves into the next phase, market participants’ ability to respond compliantly is also facing a brand-new test.