Tax compliance shows up twice in Pakistan’s virtual asset framework — once as a direct statutory obligation on licensed virtual asset service providers, and again, in a different form, as an eligibility and conduct requirement for anyone testing a product inside PVARA’s regulatory sandbox.
These are not the same duty wearing two hats. One comes from a single section of the Act; the other comes from the Sandbox Guidelines’ evaluation criteria and the undertaking every sandbox participant signs. This article separates the two and sets out exactly what each requires.
Do PVARA-licensed VASPs have a specific tax compliance duty?
Yes, under section 66 of the Virtual Assets Act 2026. Every virtual asset service provider licensed under the Act must comply with the obligations imposed under the Income Tax Act, 2001, and any Rules or Regulations issued by the Federal Board of Revenue (FBR).
“Every Virtual Asset Service Provider licensed under this Act shall comply with the obligations imposed under the Income Tax Act, 2001 and any Rules or Regulations issued by the Federal Board of Revenue.”
Section 66 sits in Chapter 12, Miscellaneous, rather than in the licensing or prudential chapters — it does not create new tax rules of its own. Instead, it confirms that holding a PVARA licence does not substitute for, or narrow, a VASP’s obligations under Pakistan’s general tax law, and that any FBR-issued Rules or Regulations apply on top of the Act.
Which tax law governs a licensed VASP’s obligations?
The Income Tax Act, 2001, together with whatever Rules or Regulations FBR issues under it. Section 66 names this Act specifically — it does not create a virtual-asset-specific tax regime of its own, and the source documents reviewed for this article do not contain the text of the Income Tax Act, 2001, or any FBR Rules made under it.
In practice, this means a VASP’s substantive tax position — what income is taxable, at what rate, and under what reporting mechanism — is set by Pakistan’s ordinary tax legislation and by FBR, not by PVARA or by the Virtual Assets Act itself. What the Act does is make compliance with that separate body of law a condition tied to holding a PVARA licence.
Does the sandbox test tax compliance separately from full licensing?
Yes. PVARA’s Sandbox Guidelines 2026 include tax law compliance as one of the Key Evaluation Criteria applied to sandbox applicants, sitting alongside criteria on innovation, risk management, and financial strength.
“Tax Law Compliance: The applicant must demonstrate compliance with applicable tax laws in Pakistan, if based in Pakistan.”
Two things stand out in this wording. First, it is framed as a demonstration requirement at the application stage, not only an ongoing duty once approved. Second, it is expressly conditional — “if based in Pakistan” — meaning the Guidelines’ own text ties this specific evaluation criterion to applicants who are already based in the country, rather than applying it in identical terms to every applicant regardless of location.
What tax registration must a foreign sandbox applicant complete?
Incorporation and evidenced tax registration, once approval is granted. Form I of the Sandbox Guidelines, in the section covering Applicant Particulars & Technical Details, sets out this requirement for applicants that are not already local companies.
“In case if the applicant is not a local company, it will be required to have the company incorporated and evidence tax registration with local tax authorities as and when sandbox approval is granted.”
This creates a sequencing point worth being precise about: a foreign applicant is not required to hold Pakistani tax registration to apply for sandbox participation, but incorporation and evidenced local tax registration become required once — “as and when” — sandbox approval is granted. The Guidelines tie this obligation to the grant of approval, not to the point of first submitting the application.
What does the sandbox undertaking say about tax obligations?
Annexure-B of the Sandbox Guidelines is the format of undertaking every approved sandbox participant signs. It contains a specific commitment on tax:
“It shall fulfill all tax obligations and maintain complete financial records as required by law, and shall not engage in or facilitate any tax evasion.”
This is a broader promise than the Key Evaluation Criteria’s application-stage test. Where the evaluation criterion asks an applicant to demonstrate compliance before approval, the Annexure-B undertaking is a standing, signed commitment that continues through the life of the sandbox participation — covering both the fulfilment of tax obligations and record-keeping, and an explicit prohibition on facilitating tax evasion, not merely committing it directly.
What record-keeping duty ties into a sandbox participant’s tax obligations?
Seven years, under the same Annexure-B undertaking that covers tax compliance. Alongside the commitment not to engage in or facilitate tax evasion, the undertaking separately requires a participant to keep a full transactional record:
“It shall retain all the transaction record and maintain proper book of account for a period of 7 years.”
This sits close to, but is distinct from, the tax undertaking itself. The tax clause addresses fulfilling obligations and avoiding evasion; this record-keeping clause fixes a specific retention period — seven years — for transaction records and books of account, which in practice is also the evidentiary base a participant would need to demonstrate that its tax obligations were, in fact, being met throughout the test period. Neither the Sandbox Guidelines nor Annexure-B tie this seven-year period explicitly to FBR’s own record-keeping rules under the Income Tax Act, 2001, so a participant should not assume the sandbox retention period and any separate tax-law retention requirement are necessarily identical, even where they point in the same direction.
How do these tax duties differ between a licensed VASP and a sandbox participant?
The legal source of the duty differs, even though the underlying expectation — genuine tax compliance — is the same in substance. The table below sets the two side by side.
| Licensed VASP (Act s.66) | Sandbox participant (Guidelines) | |
|---|---|---|
| Source of the duty | Statute — the Virtual Assets Act itself | The Sandbox Guidelines’ evaluation criteria and Annexure-B undertaking |
| Governing tax law referenced | Income Tax Act, 2001, and FBR Rules/Regulations | “Applicable tax laws in Pakistan” (not named as specifically) |
| When it applies | From the point of holding a PVARA licence | At application (evaluation) and throughout the test period (undertaking) |
| Conditional wording | None — applies to every licensed VASP | “If based in Pakistan” (evaluation criterion); incorporation/registration “as and when” approval is granted (foreign applicants) |
Neither document reviewed here states that a sandbox participant automatically becomes subject to section 66 of the Act during the test period. Section 66 is expressed to apply to a VASP “licensed under this Act” — and sandbox participation, by its nature, is a controlled testing arrangement that precedes full licensing. The tax obligations a sandbox participant carries during testing come from the Guidelines and the Annexure-B undertaking it signs, not directly from section 66, until and unless that participant goes on to hold a full licence.
About this analysis
This analysis was prepared by the CoinConnect research desk from the Virtual Assets Act 2026 (principally section 66) and PVARA’s Sandbox Guidelines 2026 (the Key Evaluation Criteria, Form I Part E, and Annexure-B), read as published. Where the two documents use different language for what is, in substance, a similar expectation, that is stated in the text above.
Regulatory positions change and specific requirements should be verified against the current position published by the relevant authority before you act on them. This is information and analysis, not legal advice, and it does not create an advisory relationship. Take professional advice on your own circumstances.
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