The federal government is preparing to bring cryptocurrency trading into the tax net by introducing a capital gains tax (CGT) in the upcoming Budget 2026-27, according to sources familiar with the matter.
The move follows consultations with the International Monetary Fund (IMF) and is part of a broader effort to regulate Pakistan’s growing digital asset market while expanding the country’s tax base.
Crypto Gains Likely to Be Taxed
Under the proposed framework, the government plans to amend Section 37 of the Income Tax Ordinance, 2001, to include gains earned from cryptocurrency trading.
Sources indicate that the proposed tax rate could range between 20% and 30%, although the final rate is expected to be announced during the federal budget presentation.
A high-level government committee has reportedly finalized recommendations covering both taxation and documentation requirements for crypto transactions. The proposals also include measures to identify and regulate previously undocumented market participants.
Government Aims to Regulate Growing Crypto Market
Officials view the taxation of crypto trading profits as one of the more straightforward aspects of digital asset regulation because such gains can be treated similarly to profits earned from securities trading.
The initiative is part of a wider strategy to establish a regulatory framework for virtual assets while ensuring investment activity does not shift excessively away from traditional sectors of the economy.
Pakistan Among Leading Crypto Adoption Markets
The proposed reforms come as cryptocurrency adoption continues to grow rapidly across Pakistan.
A report submitted by the Federal Tax Ombudsman (FTO) to the Federal Board of Revenue (FBR) estimates that there are approximately 560 million cryptocurrency users worldwide, including around nine million users in Pakistan.
The report highlighted Pakistan’s position among the countries with the highest levels of cryptocurrency adoption globally.
Concerns Over Untaxed Digital Asset Activity
Although the State Bank of Pakistan issued a circular in 2018 cautioning financial institutions about the risks associated with virtual currencies, cryptocurrencies were not formally declared illegal.
According to the FTO, a significant volume of crypto-related transactions currently takes place outside the country’s documented tax system, resulting in substantial untaxed and unreported economic activity.
The report criticized the lack of a formal taxation and regulatory mechanism despite the sector’s rapid expansion.
It emphasized that income, profits, and assets generated through cryptocurrency trading should be incorporated into a documented and taxable framework, arguing that such a move could generate additional revenue while broadening Pakistan’s tax base.
Ministry of Finance Reviewing Proposals
Officials from the Ministry of Finance’s tax policy unit have confirmed that cryptocurrency taxation remains under active consideration.
The government is reportedly consulting with industry experts and stakeholders to develop a framework that balances revenue generation with market growth.
Challenges in Taxing Digital Assets
While experts generally support the regulation of cryptocurrencies, they caution that designing an effective taxation system presents several challenges.
Digital asset ecosystems extend beyond simple buying and selling activities and include:
- Cryptocurrency mining
- Staking rewards
- Yield farming
- Decentralized finance (DeFi)
- Non-fungible tokens (NFTs)
- Initial Coin Offerings (ICOs)
- Initial Exchange Offerings (IEOs)
Many of these activities involve transactions outside traditional banking channels, making monitoring and taxation more complex.
Proposed Tax Framework Under Discussion
Tax specialists have recommended amendments to the Income Tax Ordinance that would formally recognize cryptocurrencies as financial assets and establish clear rules for calculating gains and losses.
Among the proposals under consideration is the use of the First-In, First-Out (FIFO) valuation method for determining taxable gains on cryptocurrency disposals.
Policymakers are also evaluating the possibility of linking tax rates to holding periods, a move that could encourage long-term investment while discouraging speculative trading.
Offshore Crypto Holdings Present Additional Challenge
One of the most sensitive issues facing policymakers is the treatment of undeclared cryptocurrency assets held overseas.
Many Pakistani investors reportedly opened accounts on foreign crypto platforms using offshore addresses due to the absence of a domestic legal framework in previous years.
Experts warn that imposing taxes without offering a transitional compliance mechanism could encourage capital flight, asset concealment, or the loss of potential tax revenues.
As a result, the government is exploring options that would encourage compliance while providing a practical pathway for the declaration and regularization of previously undocumented crypto holdings.
The final details of the proposed cryptocurrency taxation framework are expected to become clearer when the federal government unveils Budget 2026-27.
