Doing business in Pakistan; A Comprehensive Guide to Business Environment, Opportunities, and Challenges

The Institute of Chartered Accountants of Pakistan Embassy of Pakistan Riyadh, KSA EY in Pakistan CEO Club Pakistan ACCA Pakistan

1.??? Introduction to Pakistan

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Geographical Location:

·?????? South Asia, bordered by India, China, Afghanistan, and Iran.?

·?????? Strategic location as a gateway to Central Asia, the Middle East, and South Asia.?

Population:

·?????? Over 240 million (5th most populous country in the world).?

·?????? Young population: 60% under the age of 30.?

Languages:

·?????? Official: Urdu and English.?

·?????? Regional languages: Punjabi, Sindhi, Pashto, Balochi.?

Currency: Pakistani Rupee (PKR)

Time Zone: Pakistan Standard Time (PST), UTC +5.?

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2.??? Economic Overview

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Economic Landscape of Pakistan?

GDP: $376 billion (2023 estimate).?

GDP per capita: $1,500.?

Economic Growth Rate: 2-3% (2023).?

Key Sectors:

·?????? Agriculture (24% of GDP): Major crops include cotton, wheat, rice, sugarcane, and maize.?

·?????? Textiles (60% of exports): Garments, fabrics, yarn, and home textiles.?

·?????? IT and IT-enabled Services: Rapidly growing sector with $2.6 billion in exports (2023).?

·?????? Manufacturing: Automotive, chemicals, cement, and steel.?

·?????? Services: Banking, telecommunications, and retail.?

Challenges:?

·?????? High inflation (5-20%). Reducing every month

·?????? Energy high costs.

·?????? Political instability

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3.??? Ease of Doing Business

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World Bank Ease of Doing Business Rank: 108th (2020).?

Key Reforms:

·?????? Simplified business registration process through online portals.?

·?????? Tax reforms under the Federal Board of Revenue (FBR).?

·?????? Improved access to credit through credit bureaus and collateral registries.?

Challenges:

·?????? Bureaucratic hurdles and lengthy approval processes.?

·?????? Corruption and regulatory inefficiencies.?

·?????? Infrastructure gaps, particularly in transportation and energy.?

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4.??? Business Environment in Pakistan?

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Legal Framework:

Regulatory bodies:?

·?????? SECP (Securities and Exchange Commission of Pakistan): Regulates corporate entities.?

·?????? FBR (Federal Board of Revenue): Oversees taxation.?

·?????? SBP (State Bank of Pakistan): Central bank regulating monetary policy.?

Types of Business Entities:?

·?????? Sole Proprietorship: Owned and operated by one individual.?

·?????? Partnership: Two or more individuals share ownership.?

·?????? Limited Liability Company (LLC): Separate legal entity with limited liability for shareholders.?

·?????? Public and Private Limited Companies: Suitable for larger businesses.?

Investment Policies:

·?????? Liberalized investment regime with 100% foreign ownership allowed in most sectors.?

·?????? Special Economic Zones (SEZs) with tax incentives and infrastructure support.?

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5.??? Starting a Business

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Steps to Start a Business in Pakistan?

·?????? Choose Business Structure: Decide on the type of entity (e.g., LLC, sole proprietorship).?

·?????? Register Business:

o?? File incorporation documents with SECP.?

o?? Obtain a Certificate of Incorporation.?

·?????? Obtain NTN:** Register for a National Tax Number (NTN) with FBR.?

·?????? Open Bank Account: Open a corporate bank account with a local or international bank.?

·?????? Register for Social Security:** If hiring employees, register with EOBI (Employees' Old-Age Benefits Institution) and Social Security institutions.?

·?????? Obtain Licenses: Depending on the industry, obtain necessary licenses (e.g., from local authorities, health departments, or environmental agencies).?

Timeframe: Typically 10-15 days for registration and licensing.?

Cost: Varies based on business type and capital.?

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6.??? Taxation System

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Taxation in Pakistan

Corporate Tax Rate:

·?????? 29% for public companies.?

·?????? 20-29% for small & private companies.?

Sales Tax: Standard rate of 17% on goods and services.?

Withholding Taxes: Applicable on various transactions (e.g., imports, contracts, dividends).?

Tax Incentives:

·?????? Tax holidays for SEZs (5-10 years).?

·?????? Reduced tax rates for IT exports (1% for freelancers, 3% for companies).?

·?????? Customs duty exemptions on machinery imports for specific industries.?

Filing Requirements:

·?????? Annual tax returns.?

·?????? Monthly/quarterly filings for sales tax and withholding taxes.?

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7.??? Labor Laws

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Labor Regulations in Pakistan?

·?????? Minimum Wage: PKR 32,000 per month (2023).?

·?????? Working Hours: 48 hours per week, 8 hours per day.?

Employee Benefits:

·?????? Provident Fund: Mandatory for employees earning above a certain threshold.?

·?????? Gratuity: Payable after 5 years of continuous service.?

·?????? Social Security: Contributions by employers and employees.?

Termination Rules:

·?????? Notice period required (1-3 months).?

·?????? Severance pay based on years of service.?

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8.??? Foreign Investment

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Foreign Direct Investment (FDI) in Pakistan?

FDI Policy:**?

·?????? Open to foreign investors in most sectors.?

·?????? No restrictions on repatriation of profits.?

Key Sectors for FDI:

·?????? Energy: Renewable (solar, wind) and non-renewable (oil, gas).?

·?????? Infrastructure: CPEC projects, highways, ports, and railways.?

·?????? IT and Telecommunications: Growing demand for digital services.?

·?????? Manufacturing: Automotive, textiles, and consumer goods.?

Investment Incentives:

·?????? Tax exemptions for SEZs.?

·?????? Customs duty exemptions on machinery imports.?

·?????? Guaranteed equal treatment for foreign and local investors.?

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9.??? Challenges

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Challenges of Doing Business in Pakistan?

·?????? Bureaucratic Hurdles: But government is working aggressively to one window operations

·?????? Corruption: exists but less than the related economies

·?????? Political Instability: Frequent changes in government policies.?

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10. Opportunities

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Opportunities in Pakistan?

·?????? CPEC (China-Pakistan Economic Corridor) $62 billion infrastructure and energy projects.?

·?????? Young Population Over 60% under 30, providing a large workforce.?

·?????? Emerging IT Sector: Rapid growth in software exports and freelancing.?

·?????? Untapped Markets: Growing middle class and consumer demand.?

·?????? Natural Resources: Rich in minerals, agriculture, and energy resources.?

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11. Success Case Studies

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Success Stories of Doing Business in Pakistan?

·?????? Nestlé Pakistan – Successful operations in dairy and food products.?

·?????? Telenor Pakistan – Leading telecom company with significant market share.?

·?????? Systems Limited – A leading IT company with global clients.?

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12. Conclusion

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Conclusion?

·?????? Pakistan offers significant opportunities for businesses, particularly in sectors like IT, textiles, energy, and infrastructure.?

·?????? Challenges such as bureaucracy, corruption, and infrastructure gaps need to be addressed.?

·?????? With the right strategy and local partnerships, businesses can thrive in Pakistan’s growing economy.?

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Contact Information

Contact Us?

Aamir Rasheed, FCA

0092 300 8422327

Email: [email protected]