FinTax: Interpretation of Pakistan's Virtual Asset Law

Author: FinTax

Original link:

Disclaimer: This article is a reprint. Readers can obtain more information through the original link. If the author has any objections to the reprint, please contact us, and we will make modifications according to the author’s requirements. Reprints are for information sharing only and do not constitute any investment advice or represent Wu Shuo’s views and positions.

1 Introduction

In March 2026, the National Assembly of Pakistan passed the “Virtual Assets Act, 2026” (The Virtual Assets Act, 2026) (hereinafter referred to as the “Act”), legally establishing the Pakistan Virtual Assets Regulatory Authority (PVARA) as the country’s dedicated virtual asset regulatory agency. Pakistan’s attitude toward crypto assets has shifted from a complete ban to active exploration. The passage of the Act marks Pakistan’s official entry into a new era of compliant regulation and sets an important benchmark for crypto asset regulation in South Asia. This article will outline the core content of the “Virtual Assets Act, 2026,” introduce Pakistan’s crypto asset tax system and regulatory framework, analyze the significance of the law’s enactment for Pakistan, and provide compliance references 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, which established a relatively comprehensive legal framework for virtual asset regulation in Pakistan. The “Virtual Assets Act, 2026” aims to formalize this ordinance into legislation and refine its specific provisions, rather than creating many new regulations.

The Act consists of twelve chapters, covering licensing and access for virtual asset service providers, client asset segregation, anti-money laundering and counter-terrorism financing, specific regulation of stablecoins and RWA, market conduct standards, administrative penalties, and criminal accountability, forming a comprehensive regulatory chain from licensing to enforcement.

2.1 Regulatory Authority: Establishment and Powers of PVARA

Chapter 2 of the Act (Section 6) declares the establishment of the Pakistan Virtual Assets Regulatory Authority (PVARA). It is set up as an autonomous regulatory body with perpetual existence and independent legal personality. Its core powers include (Sections 7-9): approving licenses for virtual asset service providers and issuers, supervising conduct and prudential regulation; evaluating and classifying digital assets based on the “substance over form” principle to determine regulatory applicability; formulating and enforcing operational requirements and measures against AML, CFT, and other illegal activities; imposing administrative sanctions, license revocations, and criminal referrals for violations; and establishing cooperation or mutual assistance arrangements with domestic and international regulators to facilitate information sharing and coordinated actions.

2.2 Market Access: Licensing System

Chapter 3 of the Act stipulates the licensing process for virtual asset service providers, with key provisions including (Sections 18-23):

(1) Scope of regulated services: including consulting, brokerage, custody, exchange, lending, derivatives, asset management, transfer, issuance, and mining-related services.

(2) Application process: applicants must first obtain a No-Objection Certificate (NOC) from PVARA, complete company registration, then apply for an official license.

(3) Criteria for suitable persons: controlling persons, initiators, CEOs, directors, and other key individuals must meet standards set by PVARA, which are maintained continuously.

(4) Types of licenses: PVARA may issue full licenses, or, as appropriate, temporary or limited licenses.

(5) Public register: PVARA maintains and publicly discloses a list of licensees on its website, including name, license number, permitted service types, and current regulatory status.

2.3 Regulatory Principles: Substance Over Form

Chapter 1 of the Act defines virtual assets as (Sections 2-3): “Digital representations of value that can be traded or transferred digitally and used for payment or investment purposes, excluding digital forms of legal tender, securities, or other financial assets regulated under law, issued or transferred via distributed ledger technology.” The language clearly states that virtual assets do not have legal tender status. Moreover, the evaluation, determination, and classification of regulated virtual assets, service providers, or qualified service providers are based on their substantive features, fundamental functions, usage methods, or economic impact, regardless of their nominal or structural form. PVARA has the statutory authority to conduct such assessments, determinations, and coordinate with other regulators. Therefore, in scenarios involving asset classification and license qualification, the law emphasizes the principle of “substance over form.”

2.4 Core Obligations and Legal Responsibilities

The law stipulates general obligations for virtual asset service providers, mainly including: (1) licensed operation with ongoing compliance—such as maintaining minimum paid-up capital and financial resources, submitting periodic reports and financial statements, and obtaining prior approval for significant control or business changes; (2) client asset segregation—keeping client assets separate from own assets in independent accounts, and not rehypothecating, lending, pledging, or providing other collateral without effective written consent; implementing standard key management controls; (3) fulfilling AML and CFT obligations—including customer due diligence, suspicious transaction reporting, and record-keeping. Additionally, specific provisions address issuance of fiat-backed tokens, asset-backed tokens, custody services, and mining activities.

Chapter 10 further clarifies violations and penalties (Sections 54-61). For example, providing virtual asset services without a license can result in up to 5 years imprisonment and a fine of 50 million rupees (approximately RMB 1.15 million). In cases of systemic threats, market manipulation, fraud, cybersecurity vulnerabilities, or other risks endangering customer or market integrity, regulators can issue orders to suspend specific services or freeze assets temporarily. Beyond criminal prosecution and emergency intervention powers, violations may also trigger administrative sanctions such as fines or license revocation.

3 Pakistan’s Crypto Tax System and Regulation

3.1 Evolution of Crypto Regulation

Pakistan’s crypto regulation has evolved from a complete ban to gradual liberalization. In 2018, the State Bank of Pakistan issued a ban prohibiting financial institutions from participating in cryptocurrency transactions, placing crypto assets in a legal gray area. During this period, there was no dedicated legislation, and private transactions mainly occurred through informal channels. As the global crypto market developed and domestic digitalization increased, an outright ban became impractical. In 2023, the central bank began exploring the feasibility of a central bank digital currency (CBDC); in 2024, the government initiated systematic research on stablecoins and RWA applications, accumulating practical experience for future legislation. This phase marked a pragmatic shift from a “blanket ban” to “research and regulation.” In 2025, the Pakistan Crypto Currency Committee (PCC) was formally established to promote institutional development of the crypto industry at the government level. The “Virtual Assets Ordinance, 2025” was issued in July 2025, establishing a relatively comprehensive virtual asset regulatory framework. The enactment of the “Virtual Assets Act, 2026” in March 2026, with PVARA as the permanent regulator, signaled the official start of a new compliant operating era.

3.2 Current Regulatory Landscape

Currently, Pakistan has a layered regulatory framework led by PVARA, with the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) participating collaboratively. Specifically, PVARA is responsible for licensing, regulation, and supervision of virtual assets and service providers, focusing on AML, CFT, and cybersecurity, aligning with international standards. For tokens with securities attributes, SECP retains its existing regulatory authority; matters involving foreign exchange management and payment systems require coordination with SBP. PVARA has rule-making, licensing, enforcement, and investigation powers. Section 9 of the law explicitly grants PVARA the authority to evaluate, classify, and coordinate with SBP, SECP, and others, determining whether an asset falls under regulation and which agency oversees it based on the “substance over form” principle.

3.3 Crypto Asset Taxation

On the tax front, Pakistan has not yet enacted specific legislation targeting crypto assets. Instead, crypto-related income is incorporated into the existing tax system. The law requires virtual asset service providers to comply with the Income Tax Ordinance of 2001 and relevant rules issued by the Federal Board of Revenue (FBR). In the absence of dedicated rules, crypto earnings are generally classified and taxed under the existing income tax framework, with classification and taxation subject to subsequent legislation, official interpretations, and case-by-case analysis. Public reports indicate that FBR is consulting on crypto taxation and legislative pathways.

4 Compliance Responses for Market Participants

Although the “Virtual Assets Act, 2026” has just taken effect, it has unprecedentedly clarified Pakistan’s crypto regulatory landscape. For market participants aiming to enter Pakistan, this is a policy window to improve their compliance systems.

Issuers need to evaluate whether their assets fall under virtual asset regulation based on their substantive features, functions, or economic impact, or whether they are effectively classified as securities or other regulated assets, to determine the applicable regulatory framework. If classified as virtual assets, issuers must meet specific regulatory requirements according to asset type: fiat-backed tokens require 100% reserve backing and a redemption mechanism at face value; asset-backed tokens must reserve sufficient underlying assets; algorithmic tokens are prohibited.

For virtual asset service providers (VASPs), it is noteworthy that the law provides a transition period (Section 70). Providers already offering services before the law’s effective date must complete full license applications within six months. Before license issuance, they must fulfill core obligations such as AML, CFT, and client fund protections; failure to do so may result in suspension of operations.

For investors, the licensee public register allows verification of platform and custodian license status before engaging services, reducing fund risks. Additionally, investors should enhance tax compliance awareness, monitor updates on crypto taxation policies, and keep detailed transaction records (time, counterparties, prices, quantities) for future reporting.

5 Summary

In summary, the significance of Pakistan’s “Virtual Assets Act, 2026” lies not in creating an entirely new regulatory system but in formalizing and normalizing the previously established regulatory framework, and in driving the implementation of legal provisions through PVARA. For crypto market practitioners and investors in Pakistan, the clearer regulatory landscape presents both opportunities and challenges. Asset security and data privacy are protected by the system, and industry players can better assess compliance costs and business models within clearer boundaries. However, as Pakistan’s virtual asset regulation advances to the next stage, market participants’ compliance capabilities will face new tests.