ISLAMABAD: Pakistan could generate at least $100 million (Rs20 billion) in the form of taxes in a one-year period by legalising crypto trading in Pakistan.
This was stated by Zeeshan Ahmed, country general manager for Rain Financial Inc, during a roundtable held on Tuesday to discuss the role of crypto-assets and their impact and the benefits of regularization in Pakistan.
Ahmed was referring to a Chainalysis report which claims that Pakistan-based crypto traders made $650 million in profits during July 2020 to June 2021, and if taxed at just 15 per cent (for reference India taxes crypto profits at 30 per cent), the government could generate more than $100 million or Rs20 billion in taxes.
“The collection of taxes will be enhanced and strengthened. A wider tax base is there on a large untaxed activity already operating in the market. Looking at the size of the market - there is a large chunk, and huge potential still remains,” Zeeshan Ahmed added.
The Rain team reportedly met with several stakeholders, including State Bank, SECP, Ministry of Finance, the FBR, MoITT and other bodies and as per Aatiqa Lateef, the director of public policy (Pakistan) for Rain Financial, the meetings were fruitful and she’s expecting positive things happening around the legalization of crypto trading in the country.
Rain Financial is spearheading the efforts to change that. It wants to convince the regulators in the country to regularize crypto trading and then to enter Pakistani market to offer its services here in the country.
Zeeshan said that the biggest challenge is the initial capacity building needed for regulators. Crypto is a very new arena and without the requisite due diligence and technical guidance from companies such as Rain, it is difficult for any regulator anywhere to quickly understand new technologies. Additionally, the pace at which crypto is being adopted seemingly overnight by consumers in Pakistan and globally has forced regulators to catch up. This is not an unusual phenomenon as typically it is technology which comes first and then regulation follows.
One of the key international players in the field - Rain the first licensed crypto-asset company has suggested the government to tax crypto assets and formulate regulations in this regard.
“No country or individual can remain away from the upcoming digital trends and developments,” Aatiqa Lateef said.
Briefing media on the importance of crypto assets in any modern economy, she said that relevant officials from 44 developing and underdeveloped countries are meeting in El Salvador over crypto asset regulations.
“Cryptocurrency or crypto asset as it’s called differently in various jurisdictions, have been largely adopted by advanced economies,” Lateef said.
“But the El Salvador meeting is to discuss the best regulatory framework for less advanced economies,” she added.
The challenge in Pakistan is how quickly the law can follow the markets adoption of crypto - Pakistan ranks 3rd/4th globally and usage is expected to boom exponentially. Finally, one of the challenges we have observed in other regions is the central bank and capital markets regulators effectively coordinating with other government stakeholders such as the IT and science sectors of the government. As finance and technology spaces have combined, multi-pronged approaches and agency coordination become a significant factor in developing regulations.
“Just in case if you aren’t familiar, crypto trading in banned in Pakistan. This essentially means that you can’t trade crypto assets either on an exchange or even privately with another person in the country,” she said.
Pakistan ranks highly among emerging market players in the crypto asset industry, as the country reportedly held $20 billion in cryptocurrency in 2020-21.
Aatiqa informed that Pakistan ranks highly among emerging market players in the crypto asset industry being third in Chain Analysis 2021 Global Crypto Adoption Index with market growth of 711 per cent from 2020-2021.
She said that there have been some concerns from investors over the high tax bracket; there has been a lot of positives on the regulation of the industry rather than an outright ban.
Considering the size of the crypto market in India and the potential growth there will be a huge boon to the government coffers every year. This tax clarification will encourage investors and companies to operate, as well as, move the industry towards a more regulated environment - minimizing bad actors or players.
India was able to empower the country’s Computer Emergency Response Team (CERT) to police the industry. A clear framework allowed India to police the industry and clarify what authority has the power to curb any suspicious or illicit activity. This is a boon to both companies and individuals operating in the space.
The move requires crypto businesses, such as virtual asset service providers, to keep know-your-customer (KYC) information and records of financial transactions for five years “to ensure cyber security in the area of payments and financial markets for citizens while protecting their data, fundamental rights and economic freedom in view of the growth of virtual assets”, Zeeshan said.
Compared to their regional peers, Pakistan trades far more with crypto coins, which showcases a larger propensity to trade and make quicker gains. This could be positive for oversight on capital flight and the ecosystem in Pakistan. Clear regulatory framework can allow the government to collect capital gains or income tax from investors - as investors turn their gains into fiat or other cryptocurrencies.
Clear regulatory frameworks increase investor trust and drive in revenue from other areas where regulation remains ambiguous and nascent. Several emerging market players have used this to their advantage. Pakistan is missing this trust mechanism.
One of the most important factors attributed to taxation is how these assets are classified. The key here is classification allows countries to adjust their regulation in the way they see fit and can tax/ regulate crypto in the manner that they see fit, Lateef said.
Copyright Business Recorder, 2022
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