In a recent analysis, ProPakistani revealed how Pakistan can make billions of rupees in taxes per year by simply taxing cryptocurrencies in Pakistan.
For a cash-strapped country like Pakistan, this alone should be reason enough to start the process of regulating the booming crypto market. However, in reality, there are even more benefits to regulating cryptocurrencies in Pakistan.
To get an understanding of where Pakistani public’s interest in the crypto market, take a look at how Pakistanis are faring in cryptocurrencies and the impact that it has had on the country so far.
According to Chainalysis — a research firm specializing in analyzing crypto-assets, Pakistan currently ranks third in the Central and Southern Asia region in crypto adoption. In fact, Pakistan is neck to neck with India in terms of cryptocurrency adoption and may soon surpass the massive Indian market, if provided a legal cover like our Indian neighbors.
Pakistan Ranks Third in Crypto Adoption in Central and Southern Asia region
In case you are wondering how Chainalysis ranks various markets, they look at the following three parameters:
Pakistan ranks 8th in terms of P2P trading volume globally (out of 154 countries)
P2P trade, if you aren’t familiar, is the crypto trading done between individuals on various exchanges, such as Binance. In P2P trading, the seller sends a crypto coin to a buyer, against a local currency that they exchange via bank accounts or in cash.
P2P data is usually public and can be tracked by third parties.
Pakistan received $18.6 billion in estimated value between July 20 and June 21
At Least 1 to 2 Million Pakistanis Trade Crypto Currencies
Based on traffic to various crypto exchanges and platforms (both on web and apps) from Pakistan, it is estimated that nearly 2 million Pakistanis trade cryptocurrencies in the country.
While 1 to 2 million seems like a good number, it is pertinent to note that this is just beginning. For context, below are some facts about Pakistan’s internet population:
Now imagine where the userbase would stand in three to five years if trading is allowed, and people are given the liberty to buy crypto directly using their bank accounts, cards or mobile wallets.
Rain Financial Inc. estimates that Pakistan’s crypto traders could reach the 10 million mark in 2025, meaning that the number of traders could grow by at least 5X in just three years from now.
Projected Crypto Users in Pakistan
With such a large userbase, it is clear that it cannot be ignored and must be regulated to support the investors, public and make billions from taxation. It is likely that the number of crypto traders will continue growing organically and at a gradual pace, but it would be a big mistake for the regulator to keep overlooking the segment.
While there are numerous benefits to regulating cryptocurrencies in Pakistan, some of the more impactful ones are mentioned below, starting with the much-needed tax money.
In other words, regulating cryptocurrencies could open the doors to a new financial era for Pakistan.
Case Study: Assume Pakistan has an app, developed by the government or the private sector in Pakistan – for the Pakistani audience, and it can act like a wallet for digital currency (or say a cryptocurrency) called PKR.
Now imagine paying bills with this coin, sending funds to each other or receiving funds from abroad. All possible in the blink of an eye.
If I am honest, there’s no downside of regulating crypto in Pakistan, except one: People could lose their money during market crashes. But that is also true for the leveraged foreign exchange market and the stock exchange.
Like the ongoing crypto market crash, or a crash of a particular token (LUNA for instance), or the crash of 2018, people could lose billions of dollars and that’s a concern that may raise eyebrows of the regulator.
But then again, these crashes are valid for everyone (including those who are currently trading).
If adopted by millions of users, these crashes could wipe out billions of dollars of Pakistani money into hands outside Pakistan. If someone loses in crypto, there’s might be someone gaining from it; and those gainers could be outside Pakistan.
In our conversation with crypto experts, it was confirmed that the regulation part is hard. Since it’s unchartered territory for the majority of nations, the ideal regulations are yet to be formed.
Having said that, there are some working models available in developed countries that can be adopted with some changes based on the local market to make sure that Pakistanis benefit the most from crypto and blockchain technologies.
What Pakistan can do, at best, is to allow crypto trading, start taxing the profits and meanwhile initiate the process of drafting and finalizing the regulations.
If we look at India, for instance, they are yet to finalize regulations on crypto, but they have allowed trading and 30% of all profits go into taxes. Additionally, a 1% tax is also imposed on every transaction.
This essentially means that while the government is preparing to regulate the market, which could take months, it can generate revenues that they badly need.
Unlike other countries, Pakistan is in dire need of dollars and it would not want the flight of currency to foreign lands. Considering this, Pakistan must bind exchanges for the following things:
Of course, all of this comes after proper verification and licensing of exchanges, which includes licensing fees, and requirements similar to fintech startups or even banks. The government will need to ensure that exchanges and trading platforms are backed with real money and offer insurance to the public. For a cash-strapped country like Pakistan, this could be the shortest path to increasing foreign exchange reserves and taxing businesses and traders who are currently invisible to the taxation system.
During the past couple of years, countries like El Salvador and big economies like the US, the UK and India have shown how the crypto market can be linked to the local economy and boost economic activity. With each passing day, Pakistan is losing potential investments, tax money and failing to stop the illicit transfer of finances. It would not be wrong to say that time is of the essence for Pakistan. A quick decision can pave the way for Pakistan to become home to the biggest crypto and blockchain businesses in the coming future while a slow or negative approach can halt progress and continue to damage the economy even further.