Pakistan: Market Profile

Picture: Pakistan factsheet
Picture: Pakistan factsheet

1. Overview

Pakistan’s growth continues to accelerate, but macroeconomic imbalances are widening. Macroeconomic stability is a major concern for the near-term economic outlook. Pakistan’s GDP growth increased by 0.8 percentage points over the previous year to reach 5.3% in FY17. Major impetus came from improved performance of services and agriculture sector.

Sources: World Bank, BMI Research

2. Major Economic/Political Events and Upcoming Elections

August 2017
Prime Minister Nawaz Sharif resigned.

March 2018
Pakistan had allowed the rupee to weaken twice over the five months leading up to March 2018 as it attempted to patch its weak financial position before elections due in July 2018.

Source: BBC Country Profile – Timeline

3. Major Economic Indicators

Graph: Pakistan real GDP and inflation
Graph: Pakistan real GDP and inflation
Graph: Pakistan GDP by sector (2016)
Graph: Pakistan GDP by sector (2016)
Graph: Pakistan unemployment rate
Graph: Pakistan unemployment rate
Graph: Pakistan current account balance
Graph: Pakistan current account balance

e = estimate, f = forecast
Sources: IMF, World Bank

4. External Trade

4.1 Merchandise Trade

Graph: Pakistan merchandise trade
Graph: Pakistan merchandise trade
Graph: Pakistan major export commodities (2016)
Graph: Pakistan major export commodities (2016)
Graph: Pakistan major export markets (2016)
Graph: Pakistan major export markets (2016)
Graph: Pakistan major import commodities (2016)
Graph: Pakistan major import commodities (2016)
Graph: Pakistan major import markets (2016)
Graph: Pakistan major import markets (2016)

Sources: WTO, Trade Map

4.2 Trade in Services

Graph: Pakistan trade in services
Graph: Pakistan trade in services

Source: WTO

5. Trade Policies

  • Pakistan became a member of the WTO in January 1995.

  • Pakistan's average tariff rate is a relatively high at 8.9%. There are various regulatory duties in place to protect local industries particularly in textiles, agriculture, oil and gas, steel-making as well as autos industries ranging from 10-30% on certain finished products.

  • In December 2015, Pakistan increased the regulatory duty on import of old and used vehicles from 50% to 60%.

  • In March 2016, the Ministry for Industries and Production released Pakistan's Automotive Development Policy 2016-2021 which outlines various import duties for the Autos sector. Import duty on sub components increased from 5% to 10%. Import duty on non-localised Completely Knocked Down kits reduced from 32.5% to 30% and on localised kits from 50% to 45%. Import duty on Completely Built Units ranges between 40%-75%. These are targeted to improve local production.

  • An additional 1% duty has been imposed on all imported products, except certain exempted items, such as all non-dutiable imports, import of agricultural machinery, essential raw materials and agriculture inputs, components for local industry in 25 sectors, such as leather, pesticides, sugar, fans, electric motors; on import of fertilisers, seeds and spores of sowing, telecom sector, imports under Small and Medium Enterprises and Export Oriented Unit rules, under the temporary importation scheme, import of old and used vehicles.

  • In December 2017, Pakistan's Ministry of Finance, Economic Affairs, Revenue imposed a regulatory duty of PKR.4,699/metric ton (equivalent USD 44.59) on imports of Liquefied Petroleum Gas. This will raise production costs for energy-intensive firms in the country.

  • Steel imports are heavily regulated and the country also faces risks from increasing global trade protectionism which could spur further tariff measures in the near term.

  • There are various export duties (around 25%) surrounding scrap metal, some steel products and aluminium waste.

  • There are various anti-dumping duties and import restrictions applied on manufactured goods (particularly those than can be supplied locally). Items such as tiles, galvanised coils and other metal items, textile inputs and chemical products.

Sources: WTO – Trade Policy Review, BMI Research

6. Trade Agreement

6.1 Trade Updates

In January 2017, the government of Pakistan announced an export package to support the textile industry worth PKR180bn. The policy measures announced include the removal of sales tax on imported textile machinery and the removal of customs duty and sales tax on cotton imports.

6.2 Multinational Trade Agreements


  • Pakistan-China – The agreement is projected to triple current bilateral trade to USD15bn by 2022. Firms will benefit from the development of the China-Pakistan Economic Corridor (CPEC) that will increase FDI and improve logistical infrastructure.

  • Pakistan-US – The Pakistan-US Economic Partnership will boost bilateral trade and investments and help to sustain economic reforms in the country. Firms will benefit from increased bilateral trade between the US and Pakistan, which, in 2016, was over USD5.4bn - out of which exports from Pakistan were about USD3.4bn while imports from the US are round about USD2bn.

  • Economic Cooperation Organisation Trade Agreement (ECOTA) – This agreement includes Iran, Tajikistan, Afghanistan, Pakistan and Turkey. This agreement opens up trade between key regional peers and increase industrialisation in the country contingent on greater development of logistical infrastructure and special economic zones. Greater opportunities are now available to firms with the lifting of sanctions on Iran.

  • Mauritius-Pakistan – the Partial Scope Agreement came into force in November 2007.

  • Pakistan-Malaysia – the Free Trade Agreement and Economic Integration Agreement which includes goods and services came into force in January 2008.

  • Pakistan-Sri Lanka – the Free Trade Agreement came into force in June 2005.

  • South Asian Free Trade Agreement (SAFTA) – The Free Trade Agreement includes Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The agreement came into force in January 2006.

  • South Asian Preferential Trade Agreement (SAPTA) – the Partial Scope Agreement came into force in December 1995 and includes Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka.

Under Negotiation

  • Association of Southeast Asian Nations (ASEAN) – The 10 member states of ASEAN are Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand, Myanmar, Cambodia, Laos and Vietnam. This will extend the market access of firms in Pakistan and bolster regional trade. Pakistan has signed only one PTA with Indonesia in February 2012, which became operational in September 2013.

  • The Gulf Cooperation Council (GCC) – Firms would benefit from easier access to GCC markets and greater trade facilitation in light of the country's need for fuel and energy products. Greater investment from GCC states would improve the telecommunications, real estate, energy, infrastructure, ports, aviation, and manufacturing and financial services sectors with increased growth of Islamic banking services. The proximity of Pakistan to the Gulf States will be highly beneficial to firms with greater trade facilitation and the advent of the CPEC. Pakistan's government aims to increase its trade volume with the bloc have also proposed the GCC to consider relaxation in terms of payment of crude oil purchased by Pakistan.

  • Pakistan-Afghanistan-Tajikistan Trilateral Transit Trade Agreement (PATTTTA) – This agreement will liberalise trade between the three states and allow businesses in Pakistan access to Central Asia which will mitigate supply chain risks and stimulate investments. Trade between Afghanistan and Pakistan remains very low due to regional security concerns; however, defence cooperation will help increase regional trade in the medium term.

Source: WTO Regional Trade Agreements database

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Pakistan FDI stock
Graph: Pakistan FDI stock
Graph: Pakistan FDI flow
Graph: Pakistan FDI flow

Source: UNCTAD

7.2 Foreign Direct Investment Policy

  1. Pakistan is moving towards becoming more open for foreign investment and spearheading the development of special economic zones; however, foreign direct investment (FDI) flows to the country have been negatively affected by the weak security situation and policy uncertainty. The country remains a difficult environment for foreign investors with chronic energy shortages, high levels of bureaucracy and corruption deterring investors.

  2. Regulatory barriers and administrative burden – The overall administrative burden, also for start-ups, negatively affects investment decisions. The instability of the regulatory framework, with frequent and unpredictable regulatory changes, creates uncertainty for investors and is hindering both internal investment and foreign direct investments. Efficiency of procedures in construction and environmental permitting is insufficient while corruption raises risk for investors.

  3. Foreign ownership is permitted with the exception of some sectors designated as strategic in defence-related industries, media forestry and farmland. Foreign banks are permitted to establish locally incorporated subsidiaries, provided they have the minimum global tier-one paid up capital of USD5bn or they belong to one of the regional organisations or associations to which Pakistan is a member. Absent these requirements, foreign banks are limited to a maximum 49% equity stake in locally incorporated subsidiaries. Foreign and local banks must submit an annual branch expansion plan to the SBP for approval. The SBP approves branch openings depending on the bank's net worth, adequacy of capital structure, future earnings prospects, credit discipline, and the need of the local population. All banks are required to open 20% of their new branches in small cities, towns and villages, which considerably raises operating costs. International transport (mainly air) is restricted to local firms, also foreign ownership in media is capped at 49%.

  4. Large and inefficient SOEs have retained a monopoly in a few key sectors, and the state provides annual subsidies to cover SOEs' losses. Three of the country's largest SOEs include: Pakistan Railways (PR), Pakistan International Airlines (PIA), and Pakistan Steel Mills (PSM).

Sources: WTO – Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Karachi Export Processing Zone (EPZ), Risalpur EPZ, Sialkot EPZ; Gujranwala EPZ; Saindak EPZ, Duddar EPZ, Tuwairqi EPZ, Gwadar EPZDeveloped land on competitive rates for 30 years.

One-window operation with simplified procedures, including the facilitated issuance of import permits and export authorisations.

Duty-free import of machinery, equipment and materials (including components, spare parts, and packing material).

Freedom from national import regulations. Exchange control regulations of Pakistan not applicable.

Repatriation of capital and profits – the Zone is exempted from all provisions of the Foreign Exchange Regulations Act. No sales tax on input goods, including utilities bills. Duty-free vehicles allowed under certain conditions. Domestic market available to the extent of 20% of goods manufactured. Exceptions may be available.

Presumptive tax at 1%. Only EPZA is authorised to collect Presumptive Tax at the time of export of goods which will be final tax liability.

Obsolete or old machinery can be sold in domestic market of Pakistan after payment of applicable duties & taxes. Defective goods/waste can be sold in domestic market after payment of applicable duties, maximum up to 3% of total value.

EPZ units are allowed to supply goods to Custom manufacturing bonds and indefinite loss carryforward is applicable.
Khairpur Special Economic Zone (SEZ) in KarachiThe normal incentives for exports as available to projects established anywhere in the country would be applicable to exports from the projects located inside the zone.

State-of-the-art infrastructure and efficient design (much is still under construction).

Easy access to labour, training facilities and quality logistic services.

The zone will provide inherent benefits of essential supporting amenities to small, medium, and large enterprises to grow in a global market place. Zone enterprises have exemption from custom duties on imports of capital goods; income tax amnesty for 10 years to encourage investment in the SEZ in the Pakistan's capital.

Investment opportunities with 100% ownership.

Sources: US Department of Commerce, BMI Research

8. Taxation – 2018

  • Value Added Tax: 17%
  • Corporate Income Tax: 25%-31%

Source: PwC

8.1 Important Updates to Taxation Information

The generally applicable corporate tax rate of 30% (relevant for tax year 2018) will be reduced by 1% each year until a rate of 25% is applicable for tax year 2023 and onwards.

The corporate tax rate for ‘small companies’, presently 25%, will also be reduced by 1% each year until a rate of 20% is applicable for tax year 2023 and onwards.

Super tax, presently leviable at 3%, is to be gradually phased out in the case of persons (including companies, other than banking companies) by 1% each year, until tax year 2021.

Tax on ‘undistributed reserves’ in case of public companies, has been reduced from 7.5% to 5%. Previously, no tax was payable where a company distributed at least 40% of after tax profits. Such threshold is now being reduced to 20%. Moreover, issuance of bonus shares shall no longer be considered as distribution of profits for the purposes of these provisions.

Tax at 5% earlier applicable on issue of bonus shares has been abolished.

‘Fees for offshore digital services’ received by non-resident persons have been made subject to final tax (like royalties and ‘fees for technical services’) at the rate of 5% of the gross amount.

Income from turnkey contracts derived by non-resident persons and their affiliates, that form part of an overall arrangement for supply of goods, installation, construction, assembly, commission, guarantee, and supervisory activities, is to be considered as Pakistan-source income.

Under the domestic law, scope of expression of ‘permanent establishment’ (PE) has been enhanced to include (i) fixed place of business used by non-resident persons/affiliates for execution of ‘composite’ contracts and (ii) those persons who are habitually engaged in execution of contracts on behalf of non-residents.

The concept of controlled foreign company (CFC) has been introduced with the aim to bring into the tax net passive incomes earned by foreign companies, owned by residents, that are not repatriated into Pakistan.

Gain derived outside Pakistan on disposal of a Pakistani asset, held by a non-resident company, has been included in the ambit of Pakistan-source income.

Income from services rendered by PEs of non-resident persons have now also been made subject to ‘minimum tax’ (and thus brought on par with resident corporate service providers).

Tax authorities have been empowered to disregard an entity/corporate structure having no economic substance or executed as part of a ‘tax avoidance scheme’.

Adjustment of unabsorbed depreciation/amortisation against taxable profits of subsequent years has been restricted to 50% of taxable profits in case of profits of 10 million Pakistani rupees (PKR) or more. The remaining amounts shall, however, remain eligible for carryforward/adjustment in future years.

Gain on disposal of listed and other securities held for more than five years, but less than six years were earlier taxable at 0%; however, now these have been made taxable at 15% (20% for non-filers).

The rate of tax chargeable/deductible on dividends received by a company from collective investment schemes, real estate investment trust (REIT) schemes, or mutual funds (other than stock funds) has been reduced from 25% to 15%.

‘Commercial importers’, earlier subject to tax on a presumptive basis, have now been made subject to tax under the normal tax regime, with tax at 5% of the import value considered to be a minimum tax on related transaction.

The exemption on income from export of computer software, information technology (IT) services, or IT-enabled services, has been extended to tax year 2025.

The tax credit on investment in plant and machinery and newly established undertakings is extended for a period up to 30 June 2021.

A one-time amnesty scheme has been announced for declaration of undisclosed domestic incomes/assets by 30 June 2018 for companies on the basis of payment of tax at 2% to 5% (depending on the category of such assets).

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax– 30% on Operating Profit at the standard rate (to be reduced to 30% by 1% every year going forward)

– 35% for banking companies

– 25% for small companies
Alternative Minimum Tax (AMT)Tax on 1% of turnover applies where no tax is payable or where the tax payable or paid by the company for a tax year is less than 1% of the turnover from all sources for that year.

Alternative corporate tax of 17% of accounting income applies in addition to AMT.
Capital Gains Tax10% on income from sale of securities
Royalties15% on net earnings
Dividends– 10% on net earnings

– Concessional rate of 7.5% applies to dividends from companies engaged in power generation or power projects

– 12.5% (filers) / 17.5% (non-filers) on dividends from stockfunds where the amount of dividends is lower than that of capital gains

– 25% for dividends from non-stock funds
Value Added Tax (VAT)17% on value of the products
Social security contributionsWorker's participation fund, provincial social security; 6% on gross salaries

9. Foreign Worker Requirements

9.1 Localisation Requirements

Pakistan does not mandate specific performance requirements for foreign entities operating in the country. There is no requirement to hire domestic workers at any grade or have local representation on the company's board of directors. Technical and managerial personnel working in sectors that are open to foreign investments are not required to obtain special work permits. Work visas for technical and managerial personnel are granted for one year and can be extended on a yearly basis.

9.2 Visa/Travel Restrictions

A work visa is required unless a visa abolition agreement exists between Pakistan and the employee's country, subject to the approval of the Board of Investment Pakistan. The process of obtaining a visa and work permits for foreigners in Pakistan is lengthy, taking on average of two months, and is bureaucratically complex. Bureaucratic steps include providing proof of departure, residency status, a copy of the applicant's driving license, and the completion of a Global Service Order Form. Working visas are also expensive, though the cost varies depending on whether it is a single or double entry (up to around USD295) visa or a multiple entry visa for one (USD565), two (USD565) or five years (an estimated USD1,250). However, 37 countries worldwide do not require a working visa in Pakistan, including China, Uganda, South Africa and Iran. No visa exemptions apply to European countries or major Western economies. Pakistan also issues fast-track business visas with five years' validity, to businessmen of 69 countries on the business visa list.

9.3 Language/Cultural Barriers

Though foreign language skills, especially in English, are becoming more widespread, foreign workers based in more rural areas will face language and cultural barriers.

9.4 Migrant Labour Regulations

Regulations on employment conditions and the access to basic social services, such as health care, education and justice are somewhat discriminative towards regular migrant workers, and they are basically non-existent for undocumented migrant workers.

9.5 Security Considerations

Weak infrastructure and high risk of violence and instability will dent recruitment prospects in the near term. Foreign workers will likely demand high hardship- and danger pay in order to take on the risk of working in the country. Security costs will remain elevated and businesses must employ private security companies to protect their personnel.

Sources: Government websites, BMI Research

10. Risks

10.1 Sovereign Credit Ratings

Rating (Outlook)Rating Date
B3 (Negative)20/06/2018
Standard & Poor'sB (Stable)31/10/2016
Fitch Ratings B (Negative)

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators

World Ranking
Ease of Doing Business Index
Ease of Paying Taxes Index
Logistics Performance Index
Corruption Perception Index
IMD World CompetitivenessN/AN/AN/A

Sources: World Bank, IMD, Transparency International

10.3 BMI Risk Indices

World ranking
Economic Risk Index Rank93/202
Short-Term Economic Risk Score55.853.148.3
Long-Term Economic Risk Score54.652.353
Political Risk Index Rank148/202
Short-Term Political Risk Score50.848.348.3
Long-Term Political Risk Score53.753.353.3
Operational Risk Index Rank163/201
Operational Risk Score35.43534.7

Source: BMI Research

10.4 BMI Risk Summary


Numerous structural weaknesses, including the recurring high fiscal deficits, low GDP per capita, lacklustre investment expenditure, a heavy reliance on commodity imports, and financial sector volatility will weigh down the country's growth prospects.


The country's logistics infrastructure is underdeveloped and over-stretched, such that there are frequent interruptions to supply chains as a result of acute energy and water shortages. Looking ahead, the medium- to long-term growth of the country will benefit from the implementation of the China-Pakistan Economic Corridor, which will provide much-needed stimulus to the economy and improve infrastructure capacity in the long run, contingent on significant progress being made in terms of economic reforms and improving the current security landscape.

Graph: Pakistan short term political risk index
Graph: Pakistan short term political risk index
Graph: Pakistan long term political risk index
Graph: Pakistan long term political risk index
Graph: Pakistan short term economic risk index
Graph: Pakistan short term economic risk index
Graph: Pakistan long term economic risk index
Graph: Pakistan long term economic risk index

100 = Lowest risk, 0 = Highest risk
Source: BMI Research Economic and Political Risk Indices

10.5 BMI Operational Risk Index

Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Pakistan Score34.736.936.844.320.9
South Asia Average41.643.738.944.039.7
South Asia Position (out of 8)78547
Asia Average48.950.647.747.150.0
Asia Position (out of 35)3033241734
Global Average49.849.85049.349.9
Global Position (out of 201)163174151114183

100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index

Graph: Pakistan vs global and regional averages
Graph: Pakistan vs global and regional averages
Operational Risk
Labour Market Risk
Trade and Investment Risk
Logistics Risk
Crime and Secruity Risk
Sri Lanka50.045.046.357.751.1
Regional Averages41.643.738.944.039.7
Emerging Markets Averages46.848.047.545.846.1
Global Markets Averages49.849.850.049.349.9

100 = Lowest risk, 0 = Highest risk
Source: BMI Research Operational Risk Index

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Pakistan

2017Growth rate (%)
Number of Pakistani residents visiting Hong Kong5,917-13.3
Number of Pakistanis residing in Hong KongN/AN/A

Sources: Hong Kong Tourism Board, Hong Kong Immigration Department

2017Growth rate (%)
Number of Asia Pacific residents visiting Hong Kong54,482,5383.5
Number of South Asians residing in Hong Kong36,6801.6

Sources: Hong Kong Tourism Board, BMI Research

11.2 Commercial Presence in Hong Kong

Growth rate (%)
Number of Pakistani companies in Hong KongN/AN/A
- Regional headquarters
- Regional offices
- Local offices

Source: Hong Kong Census & Statistics Department

11.3 Treaties and Agreements between Hong Kong and Pakistan

Hong Kong and Pakistan have a Double Taxation Avoidance Agreement which came into force in November 2017.

Source: Investment Policy Hub

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Consulate General of Pakistan in Hong Kong
Address: Room 803-4, 8/F, Tung Wai Commercial Building, 109-111 Gloucester Road, Wan Chai, Hong Kong
Hours of Business: Monday to Friday 9:30 a.m. - 5:00 p.m.
Honorary Consul: Mr Abdul Qadir Memon
Tel: (852) 2827 0681, 2827 0295
Fax: (852) 2827 6786


11.5 Visa Requirements for Hong Kong Residents

Hong Kong residents require a visa when visiting Pakistan.


  • Duly filled in relevant Visa Form (Family Visit/Business/Tourist)
  • Original passport along with photocopy of passport (first four pages)
  • Passport should be valid for a minimum period of six months
  • Two recent passport size colour photographs (white background)
  • Sponsor letter from Hong Kong based employer. If self-employed, any document proving your status as such
  • Letter of invitation from Pakistan with invitee’s ID
  • Letter from the Chambers of Commerce in Pakistan (for business visa only)
  • Personal Bank Statement for the last six months duly signed and stamped by the Bank
  • Travel itinerary
  • Addresses, both in Pakistan and Hong Kong, should be provided
  • For minors, both parents’ consent duly attested by Notary Public, is required, along with certified copy of child’s birth certificate
  • Persons traveling on Diplomatic/Official passports are required to attach Note Verbal
  • Any other supporting document(s) that can be helpful in processing the visa application

Healthcare Complex

South Asia
Location: Pakistan
Sectors: Health Facilities
Looking for: Open for Negotiation

Belt & Road Countries – One Belt One…

South Asia
Location: Pakistan, Sri Lanka
Sectors: Hospitality & Tourism, ICT Infrastructure