Pakistan has had a difficult time
economically and politically over the past decade. The IMF has established
several reform and economic adjustment programs for the country, but domestic
political weakness and division have made effective reform elusive. While
average annual GDP growth has hovered around four percent, Pakistan's potential growth rate is probably
closer to six percent if it could achieve macroeconomic and political
stability. Poor tax collection and administration infrastructure kept the
government budget perpetually in deficit and limited the public sector's
ability to fund infrastructure development and basic social services. And,
defense spending absorbed a high share of government resources that were
available. Public sector deficits of six percent of GDP were typical and these
crowded out private investment and built up a large public debt, which is now a
major burden to service. Several bouts of double-digit inflation further spoiled
the atmosphere for confidence building in the country's macroeconomy and
leadership. Weak investment in the industrial sector and in agriculture
inhibited productivity growth and competitiveness, the current account was
chronically in deficit and international reserve levels were precarious. And,
when Pakistan 'went nuclear' it picked up
international political problems its economy did not need.
The military coup in the fall of 1999 marks Pakistan's fourth incidence of military rule, covering almost half of Pakistan's 53-year existence since
independence. Deterioration of IMF and Commonwealth relations reversed somewhat
as the Musharraf regime has acknowledged requisite compliance with particular
economic and democratic processes. The IMF entered into a one-year Stand-by
Agreement with Pakistan in 2000, and, based upon its
satisfaction with the country's performance, has undertaken further support
under a three-year Poverty Reduction and Growth Facility ("PRGF")
program, which appears to be progressing satisfactorily. The EU re-established
contact with Pakistan in November 2000 with fully
normalized relations contingent upon the resumption of democracy.
But, the major turning point in Pakistan's fortunes regarding international assistance came in the
last quarter of 2001 when the US-led war on terrorism fought its first battle
in neighboring Afghanistan. The Musharraf government elected,
at no little domestic political risk to its future, to cooperate with the United States and was fortunate to have the first
major phase of the war next store end with a new Afghan government it can live
and work with and with the gratitude of the United States well-earned. Prospects for aid and debt relief are much
improved and progress is already being made that will reduce Pakistan's international debt burden.
Although agriculture is declining as a percentage of total output, this sector
remains the primary economic activity in Pakistan. Cotton, wheat, rice and sugarcane are the primary crops, which benefit
from an extensive irrigation system. The annual cotton crop is of particular
importance as it provides the input to the textile and garment industry, which
is the nation's dominant export industry. Pakistan is attempting to increase its information technology sector, but only
three percent of the populace have telephones at home. Having achieved a degree
of self-sufficiency in the armaments sector, Pakistan is now promoting arms sales as a means of generating more
diversified export revenue.
Pakistan is currently only 60 percent
self-sufficient in meeting its energy requirements, which are expected to
increase significantly in coming years. Fossil fuels (83 percent) and
hydroelectric facilities (17 percent) provide nearly all power with a nuclear
facility near Karachi providing minimal contribution. A
second nuclear facility was launched with Chinese assistance in March 2001. Pakistan has substantial natural gas
resources of its own, although not of the scale for export, and is
investigating import of both Central Asian and Persian Gulf natural gas as the preferred fuel of the future.
Poverty and social development indicators in Pakistan are sub-standard for the Asian sub-continent as well as for
large developing nations as a whole. The literacy rate for adult males of 58
percent is low, but the 29 percent literacy rate amongst adult females speaks
to gender inequality. Marked gender disparities also exist in generally low
primary school enrollment. Despite ample hydrological resources only 60 percent
of the populace has access to drinking water. The high annual population growth
rate of 2.6 percent strains Pakistan's
ability to maintain, much less improve, social services. Debt service and the
defense budget consume a large part of the public revenue, leaving social
services to be funded by aid and further debt obligations. Nearly 30 percent of
the population lives below the poverty line.
Economic
activity slowed in 2001 as a result of an unprecedented drought, a
weakening external environment and higher oil prices; GDP grew at about 3.3
percent during the calendar year as compared to nearly four percent during
calendar year 2000. Foreign demand for Pakistani products dropped significantly
after it became clear there was going to be a war between the United States and the neighboring Taliban regime
in Afghanistan; export orders were canceled as
buyers, shippers and insurance companies became reluctant to risk normal
economic activities in Pakistan. However, inflation rates have
remained below five percent as energy prices have stabilized and the rupee
benefited from increased demand in the aftermath of the war of terrorism.
Government deficit is coming down as progress is made on tax collection and
more outside aid is received; the deficit for calendar 2001 came in at less
than four percent of GDP, which compares very favorably with the deficit levels
experienced in the recent past. High levels of debt service and defense
spending combined with a populace that is not accustomed to paying taxes has
kept the budget deficit in the six to seven percent range in recent periods.
World Bank Data
|
|
1997 |
2000 |
2001 |
|
61.9 billion |
61.0 billion |
59.6 billion |
|
|
480.0 |
440.0 |
420.0 |
|
|
62.4 billion |
61.6 billion |
59.6 billion |
|
|
1.0 |
4.4 |
3.4 |
|
|
13.4 |
3.7 |
5.5 |
|
|
26.7 |
26.3 |
25.2 |
|
|
23.5 |
22.8 |
23.5 |
|
|
49.8 |
50.9 |
51.3 |
|
|
15.6 |
15.5 |
17.2 |
|
|
23.0 |
19.1 |
21.0 |
|
|
18.0 |
15.6 |
14.7 |
|
|
15.8 |
16.7 |
16.1 |
|
|
-7.8 |
-5.4 |
-4.1 |
The current
account deficit, which exceeded six percent of GDP in 1995-1997 was reduced to
1.3 percent of GDP in 2000 owing to the strength of textile exports, but then
swung into surplus in 2001 despite steeply falling exportsimports declined as
well and overseas remittances surged as the war on terrorism cracked down on
'underground' systems of repatriating Pakistani workers' earnings without using
the banking system. Pakistan's current account is subject to
considerable volatility due to the heavy concentration of cotton-based exports
and other commodities. Pakistan typically runs a deficit of US$1-2
billion in its merchandise trade account and a deficit on international
services of about US$3 billion, but it has also typically received US$2-3
billion in remittances from Pakistanis working abroad, many in the oil fields
of the Middle East. These repatriated earnings have
made a significant contribution to the current account over the years. With
more of such remittances moving through the banking system rather than through
informal payment channels, Pakistan's
current account balance will be further improved. Official aid transfers of
about US$1.8 billion are also expected during 2001/2002.
Pakistan's capital account, which had been
surplus in the US$2-4 billion range in the mid-1990s, turned sharply negative
by FY 1999/2000. Infusions of foreign direct investment, which had reached
nearly US$1 billion in FY 1996/1997, declined as did concessionary aid with
sanctions affecting these critical financial flows. A crisis situation existed
as foreign currency reserves held by the government fell to less than US$1
billion providing less than one month of import coverage. But, with improved
relations with the IMF upon satisfactory completion of Stand-by Agreement
obligations and implementation of the PRGF program and a renewed relationship
with the United States, funding to support Pakistan's balance of payments appears to be
forthcoming. In fact, official aid and the extraordinary remittance flows in
late 2001 and early 2002 have enabled the State Bank of Pakistan to rapidly accumulate an
unprecedented stock of international reserves. SBP is holding more than US$3.3
billion in reserves as of the end of the first quarter of calendar year 2002 (a
level more than double what it held in mid-2001) and the banking system holds
another US$1.7 billion.
|
Balance
of Payments |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
1997 |
2000 |
2001 |
|
32.7 |
32.8 |
.. |
|
|
.. |
.. |
.. |
|
|
0.1 |
0.4 |
.. |
|
|
99.0 |
.. |
.. |
|
|
Foreign direct investment, net inflows in reporting country (current US$) |
716.0 million |
308.0 million |
.. |
|
.. |
26.6 billion |
.. |
|
|
36.0 |
26.8 |
.. |
|
|
2.5 billion |
1.5 billion |
.. |
|
|
4.6 |
5.1 |
.. |
|
Exports: |
$8.8 billion f.o.b. (2001) |
|
Exports - commodities: |
Textiles (garments, cotton cloth, and yarn), rice, other agricultural products |
|
Exports - partners: |
US 24.8%, UK 6.5%, UAE 6.2%, Hong Kong 5.9%, Germany 5.6%, (2000) |
|
Imports: |
$9.2 billion f.o.b. (2001) |
|
Imports - commodities: |
Machinery, petroleum, petroleum products, chemicals, transportation equipment, edible oils, grains, pulses, flour |
|
Imports - partners: |
Kuwait 11.7%, UAE 10.7%, Saudi Arabia 10.5%, US 6%, Japan 5.6% (2000) |
For 1998-1999, the corporate income tax rates are as
follows: for banks, 55 percent; public companies, 30 percent; other companies,
35 percent. For 1999-2000 and following years, the tax rate for banks will be reduced
to 50 percent. Residents are subject to minimum tax of .5 percent of turnover.
There is no profit remission tax on branches of foreign companies. Capital
gains are subject to a 25 percent tax. Dividends received by a foreign company
are subject to a 15 percent tax, unless a treaty rate applies. Dividends
received by a public company are subject to a five percent rate.
To keep Pakistan competitive in international market exemptions or relief from
import duties has been allowed on imported plant and machinery which is not
manufactured locally. Tax relief in shape of first year allowance has been
provided for category (a): value added or export industries, category (b):
hi-tech, category (c): priority industries and category (D): agro-based
industries as well as other new industries. Tax relief has also been provided
for expansion and balancing, modernization and replacement (BMR), in existing
industries.
A composite scheme of national industrial zones engulfing industrial estates,
free industrial zones, free trade zones and export-oriented units (EOU) and
estates for small and medium industries within areas of its boundary will be
launched to promote export oriented units. Export oriented units will however
be allowed to be set up all over the country. National industrial zones will be
developed through private sector (domestic or foreign) under investor,
developer and promoter (IDP) concept. The incentives offered to enterprises
operating in these zones are extensive.
The GOP also established an export processing zone (EPZ) in Karachi, in 1989,
where special fiscal and institutional incentives, details as follows, are
available to encourage the establishment of exclusively export-oriented
industries. For 1998-1999, the corporate income tax rates are as follows: for
banks, 55 percent; public companies, 30 percent; other companies, 35 percent.
For 1999-2000 and following years, the tax rate for banks will be reduced to 50
percent. Residents are subject to minimum tax of .5 percent of turnover. There
is no profit remission tax on branches of foreign companies. Capital gains are
subject to a 25 percent tax. Dividends received by a foreign company are
subject to a 15 percent tax, unless a treaty rate applies. Dividends received
by a public company are subject to a five percent rate.
To keep Pakistan competitive in international market exemptions or relief from
import duties has been allowed on imported plant and machinery which is not
manufactured locally. Tax relief in shape of first year allowance has been
provided for category (a): value added or export industries, category (b):
hi-tech, category (c): priority industries and category (D): agro-based
industries as well as other new industries. Tax relief has also been provided
for expansion and balancing, modernization and replacement (BMR), in existing
industries.
A composite scheme of national industrial zones engulfing industrial estates,
free industrial zones, free trade zones and export-oriented units (EOU) and
estates for small and medium industries within areas of its boundary will be
launched to promote export oriented units. Export oriented units will however
be allowed to be set up all over the country. National industrial zones will be
developed through private sector (domestic or foreign) under investor,
developer and promoter (IDP) concept. The incentives offered to enterprises
operating in these zones are extensive.
The GOP also established an export processing zone (EPZ) in Karachi, in 1989,
where special fiscal and institutional incentives, details as follows, are
available to encourage the establishment of exclusively export-oriented
industries.
The government of Pakistan is open to foreign investment
and offers a package of incentives to attract foreign investors. As part of an
integrated investment promotion strategy, the GOP undertook during 1990 a
comprehensive program of radical economic reforms including liberalization,
privatization and deregulation to bring the economy into a fully
market-oriented system. This was aimed at capturing the potential of the
private sector in all areas of economic activity. The privatization process has
been redesigned to make it more transparent. Power generation,
telecommunication, highway construction, port development and operations, the
oil and gas, services/infrastructure, and social and agriculture sectors, have
now been opened to foreign investment.
Pakistan's legal framework and economic strategy do not discriminate against
potential foreign investors, but enforcement of contracts can be difficult
given the inefficiency of the court system. Foreign investment is generally
subject to the same rules as domestic investment, with the exception of certain
sensitive areas such as defense production, banking, and broadcasting. There is
little apparent denial of national treatment for foreign firms.
There is also no evidence of statutory derogation of national treatment. In
fact, the Foreign Private Investment (Promotion and Protection) Act, 1976,
specifically provides that foreign investment shall not be subject to more
taxation on income than investment made in similar circumstances by Pakistani
citizens. In practice, the issue of extension of national treatment is tested
on a case-by-case basis, but apart from sensitive industries, national
treatment appears to be the norm. However, the new Investment Policy provides
equal investment opportunities for both domestic and foreign investors. In new
policy (announced April 1999) foreign investment on repatriable basis has now
been allowed in manufacturing, infrastructure, hotel/tourism, agriculture,
services, and social sectors. Key features of Pakistan's investment climate
include the following:
Relaxation of foreign exchange controls, and allowing of full repatriation of
capital, capital gains, dividend and profits.
A general policy of permitting foreign investors to participate in local
projects on a 100 percent equity basis.
Allowing of foreign companies incorporated in Pakistan to undertake export
and import trade.
Provision of full safeguards to protect foreign investment.
Withdrawal of work permit restrictions on expatriate managers and technical
personnel working in an industrial undertaking and easing of remittance
restrictions.
Abolition of the ceiling on payments of royalties and technical fees.
Elimination of the requirement of obtaining a "No Objection
Certificate" (NOC) from the appropriate provincial government, except for
areas which are classified as negative areas (for reasons of environmental
degradation, over-congestion, etc.).
No restrictions on foreign private loans, which do not involve any guarantee
by the government of Pakistan. Also there are no restrictions on the sources of
foreign currency loans. Long-term loans can be arranged from banks, financial
institutions, and parent companies of multinationals or sup-pliers credit.
No requirement of government approval to set up an industry in any field,
place and size,
except for the following industries: arms and ammunition, high explosives,
radio-active substances, security printing, currency and mint.
(Establishment of new units for the manufacture of alcohol, except industrial
alcohol, is banned).
A person resident in Pakistan is entitled to a credit for tax on any income
earned abroad, if such income has already been subjected to tax outside Pakistan.
The government of Pakistan has so far signed agreements to avoid double
taxation with 37 countries, including the United States.
The government of Pakistan is committed to providing full protection to foreign
investment. The principal statutory vehicles for such safeguards are the
Foreign Private Investment (Promotion and Protection) Act, 1976 and Economic
Reforms Act of 1992.
1. Currency Conversion and Transfer Policies
Pakistan has a liberal foreign exchange regime with few restrictions on
holding foreign exchange and bringing it in or out of the country. There are no
limits on the inflow or outflow of funds for remittances of profits, debt
service, capital, capital gains, returns on intellectual property, or payments
for imported inputs.
The average delay period currently in effect for remitting investment returns
such as dividends, return on capital, interest and principal on private foreign
debt, lease payments, royalties and management fees through normal, legal
channels is only a week to ten days. The delay for remittances by shipping
companies is approximately one to three weeks and airlines generally experience
delays of one to two months. It is also possible to remit funds through a legal
parallel market by using Foreign Exchange Bearer Certificates (FEBCs), which
may be purchased in the secondary market.
2. Expropriation and Compensation
Direct foreign investments are protected against expropriation by the Foreign
Private Investment (Promotion and Protection) Act of 1976 and by an investment
and guarantee agreement. The government's record with respect to expropriation
of foreign investment has generally been good.
Although a number of nationalization of private concerns took place between
1972 and 1975 under the populist government of the late Prime Minister Zulfiqar
Ali Bhutto, they primarily affected domestic Pakistani companies. The current
government (and its predecessors since 1988) have credibly emphasized the great
importance of the inflow of direct foreign investment and pledged to facilitate
such investment. This implicit pro-foreign investment consensus among recent
governments makes nationalization or expropriations an extremely unlikely
course in the foreseeable future.
3. Dispute Settlement
Pakistan's legal system is based on British law, with a more recent overlay
of Islamic law. The 1956 constitution established Islamic principles to serve
as a guide to state authorities. Article 198 provides that no law shall be
repugnant to Islam. Statutes are a mixture of laws carried over from British
rule and updating amendments and laws enacted since Partition. The tiers of
civil and criminal courts begin at the tehsil (sub-district) level and range up
to the Supreme Court. The Supreme Court, based in Islamabad hears:
appeals from the four provincial High Courts and the Federal Shariah Court
(i.e. Islamic) Court;
references from the federal government;
cases involving disputes between provinces or between provinces and the federal
government.
Each province has a High Court (the Islamabad Capital Territory falls within
the jurisdiction of the Punjab High Court at Lahore). The High Courts hear
appeals from judgments and orders of the District Courts (for civil cases) and
Sessions Courts (for criminal cases) and have original jurisdiction in certain
other matters. District and Sessions judges sit at the district level; often
the same individual sits as both a district and sessions judge, depending on
whether the matter at hand is civil or criminal. There are also a number of
special courts and tribunals to deal with specific types of cases (Customs,
Banking, Environmental, Labor, etc.).
All of Pakistan's constitutions have provided that all laws should conform to
the injunctions of Islam, but there was little focused effort on this subject
until General Zia ul-Haq made Islamization of Pakistan's laws a priority. In
1979, Zia reactivated the Council of Islamic Ideology (CII), which vets
legislation for compatibility with Islam, and codified the four Hadood
Ordinances in an attempt to make the Penal Code more Islamic.
Pakistan established an Ombudsman in 1983 to deal with public complaints
against the Federal government. The Ombudsman is a non-partisan individual
appointed by the President for a four-year non-renewable term and may not be
removed for any reason. The ombudsman's purpose is to deal with cases of
mal-administration and to enforce some bureaucratic accountability.
Commercial law follows British and British Indian precedents. The Contract Act
is, in effect, a codification of the English law of contract; Pakistan adopted
the Indian Companies Act of 1913 at independence and has built on it since. Pakistan
does have a concept of bankruptcy law, again using the British model.
Bankruptcy petitions involve corporations and businesses; personal bankruptcy
is not currently a widespread concept. In general, the court appoints a
liquidator to sell off and account for the property of the bankrupt.
The establishment of a market-oriented housing finance system in Pakistan's
private sector is in its infancy. Until 1993, private firms were not permitted
to lend for housing, and the sole source of formal sector housing loans was a
highly subsidized public lender.
House Building Finance Corp. (HBFC). Recent regulatory reforms have led to the
establishment of a legal framework for licensing and regulating private housing
lenders. At present, two private housing companies are operating in a regulated
environment and offering a variety of loan instruments. In order to mobilize
funds, private housing companies may issue certificates of investment. The
Securities and Exchange Commission is responsible for licensing and regulating
new companies in the housing finance sector.
Pakistan is a member of the International Center for the Settlement of
Investment Disputes (ICSID). The Center provides facilities for conciliation
and arbitration of investment disputes between contracting states and nationals
of other states under a Convention for the settlement of investment disputes.
The Pakistan Arbitration Act, 1940, also provides a mechanism for the
arbitration of commercial disputes under which the parties either jointly
appoint a single arbitrator or each appoint an arbitrator who join a neutral arbitrator
on a three-person panel. Pakistan became a member of the Multilateral
Investment Guarantee Agency (MIGA), an arm of the World Bank, in April 1992 and
MIGA's first local initiative was to provide coverage for several banking
projects.
4. Performance Requirements and Incentives
Government policies strongly favor investment proposals in the
engineering/capital goods manufacturing sector that have large export or value
addition and local content components, but amounts are negotiable. The local
content policy, known as the deletion policy, requires that all investments
based on local assembly of imported parts, and that wish to enjoy favorable tax
rates accorded to new investments, have a deletion program to raise local
content. The Ministry of Industries monitors the deletion schedule closely and
must approve any deviation.
Some projects that have been sanctioned and are operating in Pakistan have had
considerable difficulty meeting their deletion program timetables, which often
prove too tight for investors to organize a system of dependable,
quality-conscious local suppliers. Relatively high duties discourage the import
of automotive and other finished products, although the government is reducing
duties across the board to force the Pakistani economy to become more
internationally competitive.
The government's investment policy provides that all incentives, concessions,
and facilities provided to domestic investors for industrial investment are
also available to foreign investors without discrimination. A number of
concessions, such as exemption from customs duties, sales tax concessions and a
tax exemption on investment, as well as guaranteed repatriation facilities,
have been introduced to accelerate industrial development in the country.
5. Private Ownership Rights
Foreign and domestic private entities are free to establish and own business
enterprises in virtually all sectors of the economy, with the exception of
certain sensitive areas such as defense production, etc. Private entities are
similarly free to acquire and dispose off their interests in business
enterprises.
The issue of private competition with public enterprises is complicated by the
fact that many of the entities that remain in the public sector are chronic
loss-makers. The GOP has not adopted visibly unfair competitive practices in
these public-private mergers, but the situation varies from industry to
industry, and the privatization of the state-owned entities especially in
industrial sector is on top of the agenda.
Two state-owned banks, Allied Bank Limited (ABL) and the Muslim Commercial Bank
(MCB) have been successfully privatized and are performing well. The
privatization process has been slowed down during this year; however, political
priority/inclination is for the privatization of the state-owned enterprises.
The previous state monopolies such as civil aviation have now been opened up
for private competition. Now one privately owned airline is competing with the
national carrier, PIA on national and international routes. The privatization
of telecommunication giant, PTCL, a profit making government enterprise along
with state-owned banks (Habib Bank Limited and United Bank Limited) is also on
the agenda in next two years. The lucrative niche business of mobile phones having
three international phone companies (Instaphone, Mobilink and Paktel) in the
field is now being matched up by the PTCL. The other lucrative units such as
power generating units and power distribution components of WAPDA and KESC, gas
distribution companies such as Sui Northern and Sui Southern, gas fields and
petroleum companies such as Pakistan State Oil and Pakistan Petroleum Limited
are being offered for privatization. However, the government is gradually
moving out of productive activities through a privatization program. It has
largely succeeded in divesting such activities as cement production and
vegetable oil refining and has begun the process of privatizing thermal power
production, railways, telecommunications, remaining state-owned commercial banks
and natural gas.
6. Protection of Property Rights
Pakistan's legal system protects and facilitates the acquisition and
disposition of property rights.
Pakistan is a member of the Universal Copyright and Bern Conventions. The
copyright office is a department of the Ministry of Education. Copyright on a
registered design is initially granted for a five-year period and may be
extended for two additional five-year periods. Registration of patents and
designs is administered by the Patents Office, a department of the Ministry of
Industries. Patents are granted for up to 16 years from the date of application
and may generally be extended for a five-year period and, under some
circumstances, for an additional five years. Legal remedies such as injunctions
are available in cases of patent infringement. Trade marks are registered under
the Trade Marks Act, 1940, through the Trade Mark Registry, a department in the
Ministry of Commerce. Trade marks are registered for seven years from the date
of application and the registration may be renewed for an additional fifteen
years.
Pakistan has inadequate intellectual property rights protection. Areas of
specific concern include video piracy, unauthorized reproduction of printed
works, and textile design piracy. U.S. pharmaceutical firms in particular have
criticized Pakistan's patent law for providing process rather than product
patent protection. Other firms have noted the absence of provisions for
registering service marks. A more general complaint has been that, even where Pakistan's
laws appear to provide adequate protection, enforcement is slow, sporadic, and
ineffective.
7. Transparency of Regulatory System
Enforcement of the competition law in Pakistan is under the jurisdiction of the
Monopoly Control Authority, an independent regulatory authority which lacks
enforcement muscle. Competition Law is governed by the Monopolies and
Restrictive Trade Practices Ordinance,1970. The Authority had its heyday during
the populist period of Z.A. Bhutto in the 1970s, but even then it was notable
more for its good research than its enforcement efforts. Pakistan formerly had
a relatively high degree of industrial concentration, with widespread licensing
procedures restricting entry and serving as vehicles for creating monopolies
and oligopolies. The end of the licensing regimes, the decline in bureaucratic
controls, and the liberalizing trend of the last five years have reduced
industrial concentration by bringing down barriers to entry. Certain industries
remain relatively concentrated, but for industry-specific rather than systemic
reasons.
In a bid to deal effectively with environmental degradation, the government of
Pakistan, on Dec. 6, 1997, has promulgated a major Environmental Act entitled
"Pakistan Environmental Protection Act, 1997" that provides a
comprehensive legal framework for addressing environmental problems including:
prevention and control of pollution, management of the health impact of
climatic changes;
import of chemicals and other toxic substances;
management, handling and transportation of hazardous substances;
management of industrial, municipal, and agricultural wastes as well as
promotion of sustainable development.
The Pakistan Environmental Protection Agency (PEPA) is responsible for enforcing
the laws related to the protection of the environment. PEPA, a relatively new
agency still developing its professional staff, is responsible for national
environmental policy, development and implementation of environmental
standards, and monitoring compliance with those standards. To date, PEPA has
developed standards for municipal and liquid industrial effluent and waste,
industrial gaseous emissions, motor vehicle exhaust and noise and air
pollutants.
Public sector projects that are likely to adversely affect the environment are
required to file with PEPA a detailed Environmental Impact Statement when the
project is in the planning stage; other projects may be required to file short
descriptions of their effects on the environment. Potential investors should
contact PEPA at an early stage of the planning process to ensure compliance
with environmental standards. The review process for Environmental Impact
Statements should take 90 days and may lead to approval, rejection, or request
for modification. Each province also has its own environmental protection
agency; provincial Directorates of Industry may refer a project to the
provincial agency when there are concerns about environmental impact.
The Securities Exchange Commission and the Registrar of Companies share
responsibility for outside regulation of securities markets. They and the
members of the exchanges have cooperated in streamlining processes for
registration and listing of securities. The equity market is regulated by the
Securities and Exchange Ordinance 1969 and the Securities and Exchange Rules
1981. The Companies Ordinance 1984 regulates stock exchanges by setting out the
pro-visions under which listed companies must operate.
8. Political Violence
No information is available at this time.
9. Corruption and Crime
As in many developing countries, corruption is an unwelcome, but ubiquitous,
part of the business climate in Pakistan. Recent anecdotal reports suggest that
this problem may be having a sclerotic impact on the economy. Efforts to reduce
opportunities for corruption by improving management systems in, for example,
the customs and tax services are under way. The military government has vowed
to weed out the culture of corruption. Also, important business organizations,
including the Federation of Pakistan Chambers of Commerce & Industry
(FPCCI), have made curbing corruption a principal plank of their policy
agendas.
10. Labor
Estimated on the basis of existing population of 134.0 and its annual growth at
2.3 percent, the total labor force is estimated at 38.6 million as of Jan. 1, 1999. The unemployment rate is estimated at about 6.1 percent during 1999.
11. International Investment Agreements
Pakistan has bilateral investment treaties with the Peoples Republic of China,
France, Germany, the Republic of Korea, Kuwait, the Netherlands, Romania, Sweden,
U.K., Spain, Portugal, Turkmenistan, Tajikistan, Kyrgyzstan, Kazakhstan, Turkey,
Kuwait, Malaysia and Singapore. A draft proposal for a Business Development
Forum to facilitate business development between the United States and Pakistan
was initiated in 1996, but has not yet been finalized so far.
12. Foreign Trade Zones
A composite scheme of national industrial zones engulfing industrial estates,
free industrial zones, free trade zones and export-oriented units (EOU) and
estates for small and medium industries within areas of its boundary has been
launched to promote exports. Also, establishment of export oriented units will
be allowed to be set up all over the country. National industrial zones will be
developed through private sector (domestic or foreign) under investor,
developer and promoter (IDP) concept. However, parameters of the EOU have not
been announced till now.
A single National Industrial Zone Authority (NIZA) will be set up with
statutory powers to carry out the responsibility of the management of the NIZ.
NIZA will extend one window facility to give permissions incorporating all
required clearance of various departments and arrange utility and other related
services for the investors to undertake industrial projects within the zone. A
draft legislation for NIZA has been prepared by the BOI in technical assistance
with UNCTAD, and is being processed for obtaining the government approval.
Free industrial zones will be multi-product zones where a variety of export
products can be manufactured, traded, exported or re-exported.
Free trade zones will serve as an effective instrument to boost export trading.
Private bonded warehouses will be permitted to be set up in the zones to meet
the requirements of the industrial units in the free industrial zones or other EOUs
in the country. An export oriented unit (EOU) is an industrial unit which
exports its entire production excluding permitted level of Domestic Tariff Area
sales and reject. According to new Investment Policy, the incentives for free
industrial zones, free trade zones and export oriented units will be as
follows:
Local DFIs/banks may be allowed project financing in zone.
Sale up to 20 percent of exports may be allowed to domestic tariff area
subject to payment of duties and taxes.
Export of waste and defective items be allowed to tariff area and also to
bonded manufacturing units.
Exporters of a zone may be treated at par with tariff area counterparts for
freight subsidy on certain items.
Inter-unit transfer of finished goods among exporting units may be allowed.
Import duty and provincial tax exemption on imported machinery and raw
materials.
Duty free import of two vehicles for the projects located in NIZs.
The GOP also established an export processing zone (EPZ) in Karachi, in 1989,
where special fiscal and institutional incentives, are available to encourage
the establishment of exclusively ex-port-oriented industries. The government
has established two new EPZs - in Sialkot and Rawalpindi. The incentives are as
follows:
complete exemption from all federal, provincial and municipal taxes, any
foreign exchange control and insurance regulations as applicable in Pakistan up
to the year 2000;
income accruing outside Pakistan exempted from tax;
the losses, if any, on an industrial unit set-up in the zone may be carried
forward indefinitely;
import of equipment machinery and materials (including components, spare
parts and packing;
material) for enterprises set-up in the zone is exempted from all federal and
provincial taxes and duties including customs, excise, sales tax and municipal
taxes;
"one window" service and simplified procedures - import permits and
export authorizations are issued by the Export Processing Zone Authority
(EPZA);
100 percent ownership rights;
100 percent repatriation of capital;
100 percent repatriation of profits;
no minimum or maximum limit for investment;
relief from double taxation subject to bilateral agreements;
units operating in export processing zones are allowed to undertake
sub-contracting for units of tariff area subject to payment of duties and taxes
on value addition only;
units operating in export processing zones are allowed to supply goods to
Custom Manufacturing Bonds.
13. Foreign Investment Statistics
The United States is the top ranking direct foreign investor in Pakistan.
According to the GOP Ministry of Finance, cumulative direct foreign investment
from the U.S. now totals $1,248.6million. The American Business Council, whose
membership is drawn from major U.S. firms, has over sixty members. After
dropping off somewhat in 1992-93, probably as a result of the political
uncertainty which gripped the country during much of that year, investment from
the U.S. has been on the upswing. However, foreign investment has again dropped
substantially since October 1996.
For 1998-1999, the corporate income tax rates are as
follows: for banks, 55 percent; public companies, 30 percent; other companies,
35 percent. For 1999-2000 and following years, the tax rate for banks will be
reduced to 50 percent. Residents are subject to minimum tax of .5 percent of
turnover. There is no profit remission tax on branches of foreign companies.
Capital gains are subject to a 25 percent tax. Dividends received by a foreign
company are subject to a 15 percent tax, unless a treaty rate applies.
Dividends received by a public company are subject to a five percent rate.
To keep Pakistan competitive in international market exemptions or relief from
import duties has been allowed on imported plant and machinery which is not
manufactured locally. Tax relief in shape of first year allowance has been
provided for category (a): value added or export industries, category (b):
hi-tech, category (c): priority industries and category (D): agro-based
industries as well as other new industries. Tax relief has also been provided
for expansion and balancing, modernization and replacement (BMR), in existing
industries.
A composite scheme of national industrial zones engulfing industrial estates,
free industrial zones, free trade zones and export-oriented units (EOU) and
estates for small and medium industries within areas of its boundary will be
launched to promote export oriented units. Export oriented units will however
be allowed to be set up all over the country. National industrial zones will be
developed through private sector (domestic or foreign) under investor,
developer and promoter (IDP) concept. The incentives offered to enterprises
operating in these zones are extensive.
The GOP also established an export processing zone (EPZ) in Karachi, in 1989,
where special fiscal and institutional incentives, details as follows, are
available to encourage the establishment of exclusively export-oriented
industries.
Sources: Country Watch, Central Intelligence Agency: http://www.cia.gov
International Monetary Fund: http://www.imf.org
World Bank: http://www.worldbank.org
Pakistan Board of Investment: http://www.pakboi.gov.pk
Tourism in Pakistan: http://www.tourism.gov.pk/destinations.html