Islamabad:
The landscape of global finance undergoes a massive transformation by the adoption of blockchain technology, a large digital and immutable distributed book that can work as a decentralized public or private network.
Blockchain technology is the foundation on which digital assets and decentralized finance (DEFI) work, facilitating their creation, protection, transparency and their decentralized transfer. Digital assets and DEFI help revolutionize major industries, including finance, real estate and creative sectors such as arts and entertainment, through a decentralized system that allows loans, loan, trade and other financial activities without the need for intermediaries.
The evolution of blockchain technology has enabled individuals and companies to record, authenticate and transfer the property of digital assets. Markets and savings are adapted quickly to the rise of digital assets, while regulatory institutions strive to regulate these assets as their adoption accelerates.
When creation, digital assets were perceived as a fashion that passes, however, their adoption continues to grow. People around the world radically modify the means to make transactions thanks to Blockchain technology, which reduces dependence on intermediaries such as central and commercial banks.
Unlike traditional financial systems based on intermediaries, Blockchain technology works via a decentralized system, which can change the control of its users.
A few months ago, I represented Pakistan in an international course on digital assets organized by Malaysia Tax Academy in collaboration with the International Tax Documentation Bureau where there were tax officials from 12 participating countries, including Malaysia, India, Ghana, Indonesia, Cambodia, Maurice and Morocco.
I was surprised to discover that almost all these countries already adopted digital assets and actively developed a legal framework to tax digital assets or had already introduced such laws in their respective jurisdictions. Pakistan was the only country where no active discussion to regulate digital assets occurred at the time, despite the fact that it ranked sixth in the Crypto’s world adoption index in 2022. However, now with recent developments, it is encouraging to see that Pakistan launched its first cryptographic advice with the appointment of a bilal bilal. This could potentially make Pakistan a modern receptive economy adaptable to rapid changes in the global financial system.
According to IMF estimates, the capital gains in cryptography have raised around $ 100 billion worldwide in 2021 only, without adapting to capital losses in the following years. Given the high adoption of cryptocurrencies in Pakistan, there is a significant potential for income collection.
Countries around the world are developing and evolving legal frameworks for the imposition of digital assets despite the world’s lack of consensus on how to tax them – whether as capital or income gains. For example, in 2022, India introduced a stable tax of 30% on digital assets as well as a 1% tax deducted from the source on all transactions. Indonesia has already introduced an income tax of 0.1% and a value added tax of 0.11% on specific cryptographic transactions.
Depending on the trial, Morocco introduced a regulatory framework on the use of cryptocurrencies in 2024 and actively develops tax laws for digital assets. It is high time for Pakistan to take decisive measures in the adoption of digital assets and to find a way to integrate them into the financial system.
The non -regulated digital asset market raises concerns among users and decision -makers. A number of large-scale application measures have taken place worldwide to recover billions of dollars of cryptocurrencies linked to surveys on money laundering.
The growing global intervention of digital assets is obvious in the legal battle between the Securities and Exchange Commission (SEC) of the United States and Binance Holdings LTD, which has been temporarily interrupted to examine the regulatory directives on digital assets. In short, digital assets are there to stay and it is essential to develop a full tax framework for them.
An important problem in the taxation of digital assets is their classification. Should they be classified as goods and imposed for capital or currency gains and imposed for income from transactions?
Similar to land tax, the sale of for -profit crypto leads to a tax on capital gains. In some cases, cryptocurrency transactions may be subject to income tax when they are won thanks to payments for goods and services, mining, intention, air parameters, commercial transactions, etc. The lack of global consensus on the classification of digital assets leads to inconsistencies in their tax treatment in the world.
Another major challenge in terms of digital assets is to extend the definition of the permanent establishment to recognize the digital presence. Nepal, through its 2024 finance law, has changed its definition of the permanent establishment to include “digital presence”.
The Federal Board of Revenue (FBR), through finance ACT 2023, inserted a new clause under the definition of the permanent establishment to include “virtual presence”, which is undoubtedly not the same as “digital presence”. For example, a foreign company could be considered as having a permanent establishment in Pakistan, if it operates an crypto exchange, a non -bubble (NFT) token market or any DEFI service accessible in the country.
It is essential for Pakistan to modify its tax shares with more than 60 countries in order to incorporate the “virtual” or “digital” presence, because the current definition of tax treaties is based in a “fixed” workplace in Pakistan. The lack of clarity of tax laws creates an ambiguity and significant disputes, resulting in millions of rupees in income blocked in disputes.
One of the main challenges to which tax administrations are faced in the application of digital tax laws is to trace property and transactions beyond borders, which are often anonymous. A highly qualified digital active ingredients’ unit must be established to follow transactions between digital wallets.
To effectively monitor these activities beyond borders, Pakistan must also join the OECD CRIPS (Carf) asset report of the OECD, which allows tax administrations to exchange cryptographic transaction data in participating countries.
The time has come for the government to regulate the use of digital assets by modifying the law of the State Bank of Pakistan (SBP). Meanwhile, the FBR must actively engage in global discussions on the taxation of digital assets while developing effective application strategies in accordance with global practices.
The regulation of digital assets will help Pakistan to keep up with the pace of their global adoption, may possibly protect users of financial fraud and help the economy by stimulating income.
