No official statement has been released from the Minister of Finance in this regard. PakWired has officially reached out to his team and we will update the story as any development happens.
After the State Bank of Pakistan (SBP) banned cryptocurrencies in 2018, the traders and miners found multiple alternative ways to trade Bitcoin and other cryptocurrencies. Following the notice last year, Urdubit, the first and only bitcoin exchange in Pakistan, also posted a shut-down notice on its website.
After almost a year, Business Recorder reported on its site that Pakistan’s intelligence agency sent a recommendation to the Finance Minister, Asad Umar, to legalize all cryptocurrencies in Pakistan and suggested him to register 5000 different cryptocurrencies and bitcoin exchanges, that are available all over the world. It was also suggested to classify all coins as an investment with their net profits to be taxed as an income. The idea is to bring cryptocurrency trade into a formal tax regime and, to do so, an establishment of a national task force has also been suggested. The task force will monitor the flow of transactions and also make sure to develop SOPs for tax deductions.
The recommendations that were put forward also included some countermeasures to the finance minister for implementation of legalization in by December 2019. “Irrespective of the option GoP adopts, ie, declaring crypto-currencies as legal or illegal, a robust oversight mechanism (mapping, investigation, and prosecution) will have to be put in place as soon as possible,” the premier intelligence agency added.
One of the reasons behind this development is to stop the illegal trade of cryptocurrencies throughout the country. Even after the ban, there are still over 5000 dealers/exchanges performing illegal trade through cash/online payment system. Reportedly, this illegal trade is happening in 100 cities with a growth rate of 400% per year. To discourage these backdoor methods, serious and speedy attention is required by all stakeholders to evolve a befitting response in this regard.
The finance minister’s office is requested to convince and take feedback from the relevant ministries/ departments/ law enforcement agencies about the recommendations in order to initiate concerted efforts for the legalization process. According to the Business Recorder, the following recommendations, suggestions, and countermeasures for the said process have been suggested to the minister. The points are copy/pasted from the original source for the due credits.
- Declaration of Crypto-currencies as legal: All such currencies have definite future prospects and are likely to cap the overall financial market in (the) near future. Pakistan also needs to capitalize on such business opportunities to her advantage like other modern countries instead of declaring these as illegal. The responsibility may be given to MOF/SBP and timeline should be June 2019.
- Registration of Crypto-currency exchanges and individuals: In order to monitor/ bring under (the) tax net, the cryptocurrency/Bitcoin exchanges and individuals involved in trade need to be registered under Pakistan Stock Exchange(PSX) and Securities and Exchange Commission of Pakistan (SECP) for mapping/clear visibility purposes and to increase taxation. The responsibility may be given to MOF/SBP/SECP/PSX and timeline should be June 2019.
- Classification of Cryptocurrencies: There is a need for new classifications of crypto-currencies as “an investment” with all net gains to be taxed. For example, the US tax authority (IRS) has classified crypto-currencies as “property” for the purpose of federal taxation, whereas the US Treasury Department’s FinCEN (Financial Crimes Enforcement Networks) has classified crypto-currencies as “value” for the purpose of AML/CFT obligations. Other countries have taken a different approach, avoiding a formal classification and focusing instead on the nature or type of transactions being conducted. The responsibility may be given to MoF/SBP/FBR and timeline should be June 2019.
- Develop a coordinated virtual currency strategy: It should include outcome goals, a description of how the GoP intends to achieve these goals, and an action plan with a timeline for implementation. In addition, the strategy should be to use the tools available to FBR and identify how the FBR is going to meet its Bank Secrecy Act (BSA), criminal investigation and tax enforcement obligations as related to virtual currencies as well as identify how actions will be monitored and the methodologies used to measure the actions taken. The responsibility may be given to PTA/MoF/SBP/FBR and timeline should be June 2019.
- FATF report and guidance: All concerned are also required to carry out (a) study of FATF reports including ‘Virtual Currencies Key Definitions & Potential AML/CFT Risks-June 2014’ and ‘Guidance for a Risk-Based Approach-Virtual Currencies June 2015.’ All countries are required to implement the relevant AML/CFT requirements specified by the FATF as international standards to convertible virtual currencies (VC) exchanges. This should include three areas like know your customer procedures, maintaining certain transactional records and reporting suspicious transactions of various types. The responsibility may be given to all departments and (the) timeline should be June 2019.
- Monitoring of crypto-currencies: It is the most difficult part which needs specific expertise/laws through which crypto-currency trade being carried out via hidden platforms needs to be brought under a registered banner. For the purpose, (the) following is recommended:
A): Analysis of models adopted by different countries and promulgation of relevant laws.
B): Training to acquire technical expertise to oversee/track such trade i.e. through exchanges and well as individual-based trading.
C): Establishment of a special department within the SBP to study the impact of trade and deal with such currencies housing financial experts, cyber experts, data analysis and representatives of intelligence agencies.
D); Nomination of a lead agency/deportment to carry out (the) related investigation. (The) recommended department is FIA.
E): Stringent KYC and scrutiny of transactions by financial institutions (FIs).
F): It is suggested that GoP establish(es) a national task force on the module of Australia and the USA comprising members from all concerned departments to monitor the flow of transactions through crypto-currencies.
G): Examples of establishment of a monitoring department of virtual/cryptocurrencies by contemporaries: In December 2017, Australia passed an amendment to AML/CFT legislation to cover digital currency exchanges which are being monitored by AUSTRAC under the amended legislation i.e. Digital Currency Exchange Providers Law under which they are required to register in AUSTRAC’s new digital currency exchange register.