SOHAIL SARFRAZ

ISLAMABAD: The federal government is likely to introduce legislation through Finance Bill 2026 to tax and document cryptocurrency transactions in the coming budget (2026-27).

Sources told Business Recorder that the taxation of cryptocurrency is the biggest challenging task for the government.

The Tax Policy Unit of the Finance Ministry as well as Federal Board of Revenue (FBR) is devising an initial crypto taxation framework that will eventually integrate with Pakistan’s broader fiscal system. The biggest institutional challenge, however, lies in repatriation of crypto assets held abroad.

Keeping in view sensitively of the issue, the government is working on multiple proposals to finalize the taxation framework to ensure documentation as well as encourage investment.

The FBR is also exploring options of taxing money/profits generated and assets created through the deals of digital currency.

On one hand, the government is encouraging investment in digital assets, but on the other, the government would ensure to avoid misuse of the facility.

The biggest challenge is to document cryptocurrency transactions, but wanted to protect the source of investment as well. The documentation of un-registered persons would be the biggest challenge for the tax machinery.

Therefore, taxation framework for cryptocurrency is not an easy task.

The government is considering granting some concessions to the cryptocurrency transactions and smartly dealing with the issue of tax rates, tax treatment and documentation of un-registered persons.

Another issue is that the source of investment may not be checked, but the facility should not be misused under the new law.

One of the proposals under consideration is to expand the scope of section 37 (capital gains tax) of the Income Tax Ordinance 2001 on cryptocurrency to charge tax.

The current situation requires development of a taxation mechanism covering all segments of crypto activity. Taxation of capital gains from trading virtual currencies represents the most straightforward component.

According to past report of the Federal Tax Ombudsman to the Federal Board of Revenue (FBR) on cryptocurrencies, there are 560 million users of digital currency worldwide, and of these, nine million users are in Pakistan.

Pakistan is the sixth-largest country in the world to adopt cryptocurrency. The State Bank of Pakistan issued a circular on April 6, 2018, regarding Risks of Virtual Currencies, but did not declare virtual currency as illegal.

Pakistan’s cryptocurrency market is experiencing rapid growth, with increasing interest from both individual investors and institutional players, the FTO maintained.

It is pertinent to note that money/ profits generated and assets created through dealings in cryptocurrency will remain undocumented/ untaxed, unless this regime is streamlined by introducing legal provisions and regulated through well-defined rules. Grappling with the menace of massive evasion, this newly emerging window can ease some of the government’s revenue constraints. The legislation on cryptocurrency shall broaden the tax base, which is pending so far before the Policy Wing of the FBR and needs to be properly addressed on a priority basis, the FTO’s report added. A tax expert suggested that the legalization process, while timely and necessary, introduces complex fiscal, regulatory, and structural challenges, most probably the question of how to effectively tax virtual asset transactions without discouraging innovation or triggering capital flight.