Virtual Asset Ordinance 2025: Explanation and comments—II

Business Recorder

15-07-2025

Redemption of Asset Reference Token
An Issuer of an Asset-Referenced token shall maintain arrangements for the custody, valuation, and safekeeping of reference assets, and ensure redemption, reserve, and disclosure mechanisms in such manner as may be prescribed in Regulations.
Illustrative Example in Pakistan's Regulated Exchange Regime
Virtual Asset Ordinance 2025: Explanation and comments—I
In our view, which may be substantiated when the rules will be prescribed will be that the minimum capital requirement for the issuer is Rs 1 billion. Therefore, if a foreign issuer intends to issue an asset referenced token in Pakistan to Pakistanis then there will be an inward flow of $ 357,000 [Rs 1,000,000@ 280 per 1 $] which will remain invested in Pakistan in various Pakistani assets.
The issuer can have assets outside Pakistan also. However, that is not necessary. The Pakistan buyers will pay in rupees; however, they may be issued asset-referenced tokens to the extent of $ actually brought in Pakistan.
The Virtual assets in this case may include foreign held assets also. A Pakistani buyer cannot be issued a token with respect to that value. Such offerings will be made to foreigners.
In principle, the Pakistani owner of such a token will be allowed to trade in such a token, make payments and investment outside Pakistan on the basis of the value of such token without any approval from the State Bank of Pakistan. This means that a Pakistani has purchased a foreign currency outside Pakistan.
There is no risk for the foreign exchange of Pakistan as the equivalent value of initial offering has already been received in $.
There will be no repatriation of the initial offering in US $ brought in Pakistan until all the tokens are redeemed and there is an approval for repatriation of funds outside Pakistan.
This system effectively means that Pakistanis will be able to make payments outside Pakistan if they acquire tokens of Virtual Assets provided such virtual assets are issued on the basis of funds actually received by State Bank of Pakistan and held and invested in Pakistan.
In case of fiat-based token then the redemption shall be at par.
This practically means that entities can effectively leverage their assets by issuing tokens which are redeemable as to be prescribed, except in case of fiat based tokens which are redeemable at par. Fiat based tokens are effectively currencies.
Bitcoin can be used as organised 'Hawala'
Virtual Assets including Bitcoins are owned by many Pakistani out of foreign exchange held outside Pakistan. This may be official money. For example Mr A has Bitcoins, declared in the Wealth Statement reflected in rupees. Say Rs 2800 for $ 10 worth of coin. Mr A can acquire assets in Pakistan worth Rs 2800 from Mr B, a Pakistani and can give him (transfer Bitcoin to Mr B) who wants $ 10 in the USA not involving the State Bank of Pakistan. Mr B can redeem or sell the Bitcoin realising $ 10 in the USA. This means that Mr B has sold an asset in rupees however the amount has been received in $ outside Pakistan. This is an organised 'Hawala'. There can be many variations of this generic transaction.
Indian Law
In India, there is no law relating to Virtual Assets and the Supreme Court of India has asked the legislature to introduce the one. However, India has introduced the concept of Virtual Digital Assets in the Income tax laws.
Under Section 2(47A) of the Indian Income Tax Act, 1961 virtual digital asset means:
'(a) Any information or code or number or token (not being Indian currency or foreign currency), generated through cryptographic means or otherwise, by whatever name called, providing a digital representation of value exchanged with or without consideration, with the promise or representation of having inherent value, or functions as a store of value or a unit of account including its use in any financial transaction or investment, but not limited to investment scheme; and can be transferred, stored or traded electronically;
(b) Non-fungible Token (NFT) or any other token of similar nature, by whatever name called;
(c) Any other digital asset, as the Central Government may, by notification in the Official Gazette specify.
In simple words, the virtual digital asset shall mean a cryptocurrency, NFT or another virtual digital asset as notified by the Central Govt. It will not cover subscriptions to any OTT platform, mobile applications, e-commerce platforms, etc.
Furthermore the Indian Finance Act, 2022 inserted a new section 194S in the Act with effect from 01/07/2022. The new section mandates a person, who is responsible for paying to any resident any sum by way of consideration for transfer of a virtual digital asset (VDA), to deduct an amount equal to 1% of such sum as income tax thereon. The tax deduction is required to be made at the time of credit of such sum to the account of the resident or at the time of payment, whichever is earlier.
Obligation of Issuers of Initial Virtual Asset Offering
Prior to offering a Virtual Asset to the public, an Issuer shall publish a 'white paper' in such form and manner as may be prescribed by Regulations.
The 'white paper' shall contain true, clear, and not misleading information regarding, inter alia-
(a) the nature, characteristics, and purpose of the Virtual Asset;
(b) the rights and obligations of holders or purchasers of the Virtual Asset;
(c) the economic model technology, and governance mechanisms of the asset or platform;
(d) the identity and qualifications of the Issuer, Controllers, and relevant key individuals;
(e) associated risks, including market, legal, technological and cyber security risks; and
(f) any other information as may be Prescribed.
(2) Issuers shall make ongoing disclosures of material information, including any change that may reasonably affect the value, utility, or regulatory status of the Virtual Asset, in such manner and frequency as may be prescribed by the Authority.
Tax
Every Virtual Asset Service Provider licensed under this Ordinance shall comply with the obligations for tax withholding and the filing of information returns as prescribed under the Income Tax Ordinance, 2001 and any Rules or Regulations issued by the Federal Board of Revenue in relation to transactions involving Virtual Assets and the income of the Virtual Asset Service Provider.
Pakistan Virtual Assets Regulatory Authority
A body has been formed under the Act to govern the Virtual Assets Ordinance. The Board shall consist of:
(a) a Chairperson who shall possess demonstrable expertise in finance, law, technology, or regulatory affairs and be appointed by the Federal Government in the manner Prescribed;
(b) the Governor, State Bank of Pakistan;
(c) the Secretary, Ministry of Finance;
(d) the Secretary, Ministry of Law and Justice;
(e) the Secretary, Ministry of Information Technology and Telecommunications;
(f) the Chairperson, Securities and Exchange Commission of Pakistan;
(g) the Chairperson Digital Pakistan Authority;
(h) the Chairperson FBR;
(i) the Director General FIA; and
(j) two independent directors with proven expertise and a strong track record possessing expertise relevant to Virtual Asset markets, technology, finance, law or consumer protection, appointed by the Federal Government in the manner prescribed.
Service Provider
No Person shall, by way of business, engage in, or represent themselves as engaging in, any Virtual Asset Services in or from Pakistan, unless that Person:-
(a) is a company incorporated under the Companies Act, 2017 or any other law for the time being in force in Pakistan governing the incorporation of companies; and
(b) holds a valid license granted by the Authority under this Ordinance.
Advisory Services mean the provision of personalized recommendations to a customer, either upon request or at the initiative of Virtual Asset Service Providers, relating to one or more actions or transactions involving Virtual assets.
Broker-Dealer Services means:
(a) arranging or facilitating orders for the purchase and sale of Virtual Assets between two parties;
(b) soliciting or accepting orders and receiving consideration in fiat currency or Virtual Assets;
(c) trading Virtual Assets on the Virtual Asset Service Provider's own account;
Exemption: A Person that deals solely on its own account, does not execute orders on behalf of customers, and does not hold or control Customer Assets is not regarded as carrying on 'broker-dealer services' for the purposes of this Ordinance
(d) market-making using Customer Assets; or
(e) providing placement or distribution services for Issuers.
Custody Services mean the safekeeping or controlling, on behalf of customers, of Virtual Assets or of the means of access to such Virtual Assets.
Exchange Services mean any of the following:
(a) exchanging Virtual Assets for fiat currency;
(b) exchanging one or more types of Virtual Assets;
(c) matching orders between buyers and sellers and executing conversions as described in (a) and (b ); or
(d) maintaining an order book for the above purposes.
Lending and Borrowing Services mean the facilitation of lending or borrowing arrangements involving Virtual Assets, where one or more lenders transfer or lend Virtual Assets to one or more borrowers, subject to a contractual obligation for the borrower to return equivalent Virtual Assets at a specified time or upon demand.
Virtual Asset Derivatives means the offering or facilitation of transactions in derivatives that have a Virtual Asset as their underlying reference asset.
Virtual Asset Management and Investment means acting in a fiduciary or agency capacity Services capacity for the purpose of managing or administering another Person's Virtual Assets, including:
Virtual Asset Transfer and Settlement Services includes transfer, transmission, or settlement of Virtual Assets between parties, or from one wallet, address, or location to another, on behalf of customers.
Fiat-referenced Token Issuance Services
The issuance, offering, redemption, or ongoing management of any fiat or Asset-Referenced token, including:
• Establishing or administering reserve
assets backing the value of the fiat-referenced Token;
• Providing redemption rights or liquidity mechanisms to users or holders;
• Operating any infrastructure enabling the issuance, transfer, or conversion of such Fiat-Referenced Token;
• Acting as the primary Issuer, reserve custodian, or central administrator of the Fiat-Referenced Token system.
(Concluded)
Copyright Business Recorder, 2025