2023 Investment Climate Statements: Pakistan

Policies Towards Foreign Direct Investment

Pakistan seeks inward investment to boost economic growth, particularly in the renewable energy, agribusiness, ICT, and industrial sectors. Since 1997, Pakistan has maintained a largely open investment regime. Pakistan introduced an Investment Policy in 2013 that further liberalized investment policies in most sectors to attract foreign investment. Pakistan’s investment promotion agency is the Board of Investment (BOI). BOI is responsible for attracting investment, facilitating local and foreign investors, implementation of projects, and enhancing Pakistan’s international competitiveness. BOI assists companies and investors who seek to invest in Pakistan and facilitates the implementation and operation of their projects. BOI is not a one-stop shop for investors, however.

Foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect IPR, and establish clear and consistent policies for upholding contractual obligations and settlement of tax disputes. The Foreign Private Investment Promotion and Protection Act (FPIPPA), 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection for foreign investors and investment in Pakistan. The FPIPPA states foreign investment will not be subject to higher income taxes than similar investments made by Pakistani citizens. All sectors and activities are open for foreign investment unless specifically prohibited for reasons of national security and public safety. Specified restricted industries include arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions specifically on U.S. investors.

The government passed the Foreign Investment Promotion and Protection Act (FIPPA) into law in December 2022 in support of the Reko Diq mining project in Balochistan. The law provides foreign investments of over $500 million that are designated as “qualified investments” by Parliament with tax incentives and protections. The law includes exemptions from federal and provincial taxes, the establishment of an investment ombudsman, and guarantees the ability to repatriate proceeds. According to the law, the ombudsman will have the same enforcement powers as a civil court and will address any investor grievance for qualified investments within 120 days. Pakistan has implemented sectoral policies designed to provide incentives to investors in specific sectors. The Automotive Policy 2016, Export Enhancement Package 2019, Alternative and Renewable Energy Policy 2019, Merchant Marine Shipping Policy 2019 (with 2020 updates), the Electric Vehicle Policy 2020-2025, the Textile Policy 2021, and a February 2022 reform package for IT sector development are a few examples of sector-specific schemes.

Pakistan cosigned an economic cooperation agreement with China, the China-Pakistan Economic Corridor (CPEC), in April 2015. Some opportunities are only open to approved Chinese companies, and CPEC has ensured those projects and their investors receive authorities’ attention.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners, other than Indian and Israeli citizens/entities, can establish, own, operate, and dispose of interests in most types of businesses in Pakistan, excepting those involved in arms and ammunitions; high explosives; radioactive substances; securities, currency and mint; and consumable alcohol. There are no restrictions or mechanisms that specifically exclude U.S. investors. There are no laws or regulations authorizing domestic private entities to adopt articles of incorporation discriminating against foreign investment.

Pakistan does not place limits on foreign ownership or control. The 2013 Investment Policy eliminated minimum initial capital requirements across sectors and there is no minimum investment requirement or upper limit on the allowed share of foreign equity, except for investments in the airline, banking, agriculture, and media sectors. Waivers to these limits require approval from the cabinet and prime minister. Foreign investors in the services sector may retain 100 percent equity, subject to obtaining permission, a “no objection certificate,” and license from the concerned agency, as well as fulfilling the requirements of the respective sectoral policy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agriculture sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed.

Foreign banks may establish locally incorporated subsidiaries and branches, provided they have $5 billion in paid-up capital or belong to one of the regional organizations or associations to which Pakistan is a member (e.g., Economic Cooperation Organization (ECO) or the South Asian Association for Regional Cooperation (SAARC)). Absent this, foreign banks are limited to a 49-percent maximum equity stake in locally incorporated subsidiaries. There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a $100,000 limit on initial franchise investments and a cap on subsequent royalty payments of five percent of net sales for five years. Royalties and technical payments are subject to remittance restrictions listed in Chapter 14, Section 12 of the State Bank of Pakistan (SBP) Foreign Exchange Manual.

Pakistan maintains investment screening mechanisms for inbound foreign investment. Pakistan blocks foreign investments where the screening process determines the investment could negatively affect Pakistan’s national security. Though BOI is the official lead agency for investment screening, it lacks in-house capacity for running such screenings and relies heavily on intelligence agencies for the required due diligence.

The Prevention of Electronic Crimes Act (PECA) is under review and is likely to contain a local presence requirement in the updated version. PECA is the parent legislation to various rules, including the Removal and Blocking of Unlawful Online Content (Procedures, Oversight, and Safeguards) Rules (commonly referred to as the Social Media Rules). Should the PECA parent legislation include the new local presence requirement, all social media companies operating in Pakistan would be subject to the local presence requirement, as would other businesses subject to rules flowing from PECA.

Other Investment Policy Reviews

USAID’s Investment Promotion Activity is working with the Pakistani government and private sector to strengthen the investment climate by updating Pakistan’s investment policies, strategies and regulations; working to reduce the complexity of compliance regimes such as registration, licensing, and permits; and addressing legal barriers such as contract enforcement and dispute resolution. The Sustainable Development Policy Institute is the leading civil society think tank in Pakistan and in 2020 reported on “excessive regulations” as the key barrier to attracting more foreign investment. Details are at https://sdpi.org/excessive-regulations-hurdle-to-foreign-investment/news_detail.  Pakistan Institute of Development Economics, a public sector think tank, produced a report in 2021 on reasons Pakistan has attracted less investment than China or India. Details are at https://pide.org.pk/research/why-do-we-have-less-investment-than-china-and-india/ .

Business Facilitation

The Board of Investment’s “Doing Business Reform Strategy 2018-21” is the national roadmap for improving Pakistan’s investment climate. The government has simplified pre-registration and registration facilities and automated land records to simplify property registration, eased requirements for obtaining construction permits and utilities, introduced online/electronic tax payments, and facilitated cross-border trade by expanding electronic submissions and processing of trade documents.

The Securities and Exchange Commission of Pakistan (SECP) manages company registration, which is available to both foreign and domestic companies. Both foreign and domestic companies must apply for national tax numbers with the Federal Board of Revenue (FBR) to facilitate payment of income and sales taxes. Industrial or commercial establishments with five or more employees must register with Pakistan’s Federal Employees Old-Age Benefits Institution (EOBI) for social security purposes. Depending on the location, registration with provincial governments may also be required. The SECP website ( https://www.secp.gov.pk/ ) offers a Virtual One Stop Shop (OSS) where companies can register with the SECP, FBR, and EOBI simultaneously.

Outward Investment

Pakistan does not promote or incentivize outward investment. While Pakistan does not explicitly restrict domestic investors from investing abroad, cumbersome and time-consuming approval processes discourage outward investments. Despite this, larger Pakistani corporations have made investments in the United States in recent years.

Transparency of the Regulatory System

Pakistan generally lacks effective policies and laws that foster market-based competition in a non-discriminatory manner. The Competition Commission of Pakistan (CCP) has a mandate to ensure market-based competition, but laws and regulations are opaque, vary among provinces, and are sometimes applied to benefit domestic businesses.  The CCP has remained without a three-member quorum of commissioners since March 2022 and is currently unable to take decisions. All businesses in Pakistan are required to adhere to certain regulatory processes managed by the chambers of commerce and industry. Rules, for example on the requirement for importers or exporters to register with a chamber, are equally applicable to domestic and foreign firms.

The federal government establishes and implements legal rules and regulations, but sub-national governments have a role as well depending on the sector. Prior to implementation, stakeholders can provide feedback to the government on regulations and policies. Regulatory authorities are required to conduct post-implementation reviews of regulations in consultation with relevant stakeholders. However, these assessments are not made publicly available. Since the introduction of the 18th amendment to Pakistan’s constitution in 2010, which delegated significant authorities to provincial governments, foreign companies must comply with provincial, and sometimes local, laws in addition to federal law. Foreign businesses complain about the inconsistencies in the application of laws and policies from different regulatory authorities. There are no rules or regulations in place that discriminate specifically against U.S. firms or investors, however.

The SECP is the main regulatory body for foreign companies operating in Pakistan, but it is not the sole regulator. Company financial transactions are regulated by SBP, labor by Social Welfare or the Employee Old-Age Benefits Institution (EOBI), and specialized functions in the energy sector are administered by bodies such as the National Electric Power Regulatory Authority, the Oil and Gas Regulatory Authority, and Alternate Energy Development Board (AEDB). Each body must submit draft regulatory or policy changes through the Ministry of Law and Justice before any proposed rules or regulations may be submitted to parliament or, in some cases, the executive branch. The SECP is authorized to establish accounting standards for companies in Pakistan. Pakistan has adopted most, though not all, International Financial Reporting Standards. Though most of Pakistan’s legal, regulatory, and accounting systems are transparent and consistent with international norms, execution and implementation is inefficient and opaque.

The Pakistani government requires companies to provide environmental, social, and governance (ESG) disclosures on their projects in country, but there is no single regulatory mechanism or central regulation for such requirements. For instance, companies must work with the Ministry of Climate Change on environmental disclosures; the EOBI on social disclosures, such as those that concern pensions; and SECP on governance disclosures. However, implementation and monitoring and enforcement mechanisms for such requirements are weak and opaque.

Most draft legislation is made available for public comment but there is no centralized body to collect public responses, nor is there a standard comment period requirement. The relevant authorities, usually the responsible ministry for proposed legislation, gathers public comments as it deems necessary; otherwise, the government submits legislation directly to the parliament. For business and investment laws and regulations, the Ministry of Commerce relies on stakeholder feedback obtained from chambers and associations rather than publishing regulations online for public review. Stakeholders may also have an opportunity for comment with members of Parliament and in parliamentary committees once the government has sent proposed draft legislation to the Parliament for review

There is no centralized online location where key regulatory actions are published. Different regulators publish their regulations and implementing actions on their respective websites. In most cases, regulatory implementing actions are not published online. Businesses impacted by non-compliance with government regulations may seek relief from the judiciary, ombudsman’s offices, and the Parliamentary Public Account Committee. These forums are designed to ensure the government follows required administrative processes. Pakistan did not announce any enforcement reforms during the last year. The BOI introduced the Pakistan Regulatory Modernization Initiative (PRMI) in June 2021 with the objective to make it easier for local and foreign businesses to comply with Pakistan’s regulations. The initiative, still in its early stages, aims to map all rules, procedures, laws and regulations; and streamline and digitize them.

International Regulatory Considerations

Pakistan is a member of SAARC, the Central Asia Regional Economic Cooperation (CAREC), and Economic Cooperation Organization (ECO). Pakistan has been a World Trade Organization (WTO) member since January 1, 1995, and provides most favored nation (MFN) treatment to all member states except India and Israel. In October 2015, Pakistan ratified the WTO’s Trade Facilitation Agreement (TFA). Pakistan is one of 23 WTO countries negotiating the Trade in Services Agreement. Pakistan notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade, albeit at times with significant delays.

Pakistan’s judicial system incorporates British standards. As such, most of Pakistan’s regulatory systems use British norms to meet international standards.

Legal System and Judicial Independence

Most international norms and standards incorporated in Pakistan’s regulatory system, including commercial matters, are influenced by UK law. Laws governing domestic or personal matters are strongly influenced by Islamic Sharia law. Regulations and enforcement actions may be appealed through the court system. The Supreme Court is Pakistan’s highest court and has jurisdiction over the provincial courts, referrals from the federal government, and cases involving disputes among provinces or between a province and the federal government. Decisions by the courts of the superior judiciary (the Supreme Court, the Federal Sharia Court, and five High Courts – Lahore High Court, Sindh High Court, Balochistan High Court, Islamabad High Court, and Peshawar High Court) have national standing. The lower courts are composed of civil and criminal district courts, as well as various specialized courts, including courts devoted to banking, intellectual property, customs and excise, tax law, environmental law, consumer protection, insurance, and cases of corruption.

Pakistan’s Contract Act of 1872 is the main law that regulates contracts with Pakistan. British legal decisions, under some circumstances, are also cited in court rulings. While Pakistan’s legal code and economic policy do not discriminate against foreign investments, enforcement of contracts remains problematic due to a weak and inefficient judiciary.

Theoretically, Pakistan’s judicial system operates independently of the executive branch. Although higher courts are widely viewed as credible, lower courts are often considered corrupt, inefficient, and subject to pressure from outside influences including the executive branch, the military, and other prominent figures. As a result, there are doubts concerning the competence, fairness, and reliability of Pakistan’s judicial system. In addition, concern over potential contempt of court proceedings inhibits businesses and the public from reporting on perceived weaknesses of the judicial system. Regulations and enforcement actions are appealable. Specialized tribunals and departmental adjudication authorities are the primary forum for such appeals. Decisions made by a tribunal or adjudication authority may be appealed to a high court and then to the Supreme Court.

Laws and Regulations on Foreign Direct Investment

Pakistan’s investment and corporate laws permit wholly owned subsidiaries with 100 percent foreign equity in most sectors of the economy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed. In the agricultural sector, the threshold is 60 percent, with an exception for corporate agriculture farming, where 100 percent ownership is allowed. There is no “single window” website for investment in Pakistan which provides direct access to all relevant laws, rules, and reporting requirements for investors.

Most foreign companies operating in Pakistan are “private limited companies,” which are incorporated with a minimum of two shareholders and two directors registered with the SECP. While there are no regulatory requirements on the residency status of company directors, the chief executive must reside in Pakistan to conduct day-to-day operations. Corporations operating in Pakistan are statutorily required to retain full-time audit services and legal representation. Corporations must also register any changes to the name, address, directors, shareholders, CEO, auditors/lawyers, and other pertinent details to the SECP within 15 days of the change. To address long process delays, in 2013, the SECP introduced the issuance of a provisional “Certificate of Incorporation” prior to the final issuance of a “No Objection Certificate” (NOC).

Competition and Antitrust Laws

Established in 2007, the CCP is designed to ensure private and public sector organizations are not involved in any anti-competitive or monopolistic practices. Complaints regarding anti-competitive practices can be lodged with CCP, which conducts the investigation and is legally empowered to impose penalties. The CCP appellate tribunal is required to issue decisions on any anti-competitive practice within six months from the date in which it becomes aware of the practice.  The CCP is without a three-member quorum of commissioners since March 2022 and is unable to take decisions. The government has advertised positions to fill vacancies. The CCP concluded actions against 134 businesses during the past two years in sectors including cement, agriculture, and energy. In March 2022, the CCP passed an order against two home appliance manufacturers for price-fixing. In December 2022, the CCP passed an order penalizing a paint company for deceptive marketing practices. The company had falsely claimed its product provided protection against COVID-19. The CCP generally adheres to transparent norms and procedures. Agency decisions are reviewable by the CCP appellate tribunal and the Supreme Court of Pakistan.

Expropriation and Compensation

The Protection of Economic Reforms Act 1992 and the Foreign Private Investment Promotion and Protection Act 1976, protect foreign investment in Pakistan from expropriation, while the 2013 Investment Policy reinforced the government’s commitment to protect foreign investor interests. Pakistan has had few instances of alleged expropriation.

Dispute Settlement

ICSID Convention and New York Convention

Pakistan is a member of the International Center for the Settlement of Investment Disputes (ICSID). Pakistan ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) in 2011 under its “Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act.”

Investor-State Dispute Settlement

Pakistan has Bilateral Investment Treaties (BIT) with 32 countries. The BITs include binding international arbitration of investment disputes. Since foreign investors generally distrust Pakistan’s domestic courts to enforce commercial contracts, they often include clauses requiring binding international arbitration of investment disputes in contracts with the Pakistani government. Pakistan does not have a BIT or FTA in force with the United States. Local courts do not recognize and enforce foreign arbitral awards issued against the government. Any award involving a domestic enforcement component needs an additional affirmative ruling from a local court. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

Arbitration and special judicial tribunals do exist as alternative dispute resolution (ADR) mechanisms for settling disputes between two private parties. Pakistan’s Arbitration Act of 1940 provides guidance for arbitration in commercial disputes, but cases typically take years to resolve and most foreign investors include contract provisions that provide for international arbitration. Pakistan’s judicial system also allows for specialized tribunals as a means of ADR. Special tribunals are able to address taxation, banking, labor, and IPR enforcement disputes. However, foreign investors lament the lack of clear, transparent, and timely investment dispute mechanisms. Pakistani courts have not upheld some international arbitration awards. Any such award, involving local enforcement, requires direction from a local court. The Reko Diq mining dispute is an example where an international arbitral award against Pakistan was not enforced by local Pakistani courts and remained unresolved for 15 years until December 2022. Generally, domestic courts favor SOEs for their investment disputes against foreign entities on the basis of “public interest.” However, there has not been a relevant case in the past ten years.

Bankruptcy Regulations

Pakistan does not have a single, comprehensive bankruptcy law. Foreclosures are governed under the Companies Act 2017 and administered by the SECP, while the Banking Companies Ordinance of 1962 governs liquidations of banks and financial institutions. Court-appointed liquidators auction bankrupt companies’ property and organize the actual bankruptcy process, which can take years to complete.

Investment Incentives

The government’s investment policy provides both domestic and foreign investors the same incentives, concessions, and facilities for industrial development. Though some incentives are included in the federal budget, the government relies on Statutory Regulatory Orders (SROs) – ad hoc arrangements implemented through executive order – for industry specific incentives. Certain technology-focused industries, including information technology and solar energy, benefit from a wide range of fiscal incentives. In general, the government does not issue guarantees nor jointly finance foreign direct investment projects. However, under the 1994 Power Policy, the government provided sovereign guarantees for long-term power purchase agreements which guaranteed payments to independent power producers in case of payment default. The government has also provided sovereign guarantees for CPEC-related projects that cover investment and returns, along with joint financing.

The Pakistani government has implemented investment incentives to promote renewable energy technologies such as feed-in-tariffs, net metering, tax exemptions, and soft loans. The 2019 Alternative and Renewable Energy Policy (ARE) aims to increase the share of electricity generated by renewable sources to 30 percent by 2030. The policy waives import duties for imported machinery for use in local manufacturing and exempts renewable energy projects from corporate income taxes. The government allows duty-free import of renewable energy equipment and energy storage systems. However, investment in storage technologies has been slow due to high costs. The 2020 Electric Vehicles (EV) Policy aims to increase the share of electric vehicles to 30 percent by 2030 and to incentivize the installation of EV charging stations through a range of incentives including rebates on custom duties, sales tax exemptions and lower tariff rates for EV charging stations. SBP launched the Financing Scheme for Renewable Energy in June 2016, which allows commercial banks and development finance institutions to finance renewable energy power projects with a capacity up to 50 MW if approved by the AEDB. Prospective sponsors can borrow up to PKR 6 billion (about $22 million) for a single renewable energy project..

Foreign Trade Zones/Free Ports/Trade Facilitation

The government operates Export Processing Zones (EPZ) in Risalpur, Gujranwala, Karachi, Sialkot, Saindak, Gwadar, Reko Diq, and Duddar. These zones offer investors tax and duty exemptions on equipment, machinery, and materials; indefinite loss carry-forward; and access to the EPZ Authority “Single Window,” which facilitates import and export authorizations.

The 2012 Special Economic Zones (SEZ) Act, amended in 2016, allows both domestically focused and export-oriented enterprises to establish companies and public-private partnerships within SEZs. According to the Pakistan’s 2013 Investment Policy, any manufacturer that introduces technologies that are unavailable in Pakistan can receive the same incentives available to companies operating in Pakistan’s SEZs. Pakistan has a total of 24 designated SEZs. All investors in SEZs are offered a number of incentives, including a ten-year tax holiday, one-time waiver of import duties on plant materials and machinery, and streamlined utilities connections. Despite these benefits to both foreign and domestic firms, Pakistan’s SEZs have struggled to attract investment due to a number of factors, including location and their lack of basic infrastructure. Pakistan also intends to establish nine SEZs under CPEC; those SEZs remain in nascent stages of development and currently lack basic infrastructure.

The government offers special incentives for Export-Oriented Units (EOUs) – a stand-alone industrial entity exporting 100 percent of its production. EOU incentives include duty and tax exemptions for imported machinery and raw materials, as well as the duty-free import of vehicles. EOUs are allowed to operate anywhere in the country. Pakistan provides the same investment opportunities to foreign investors and local investors.

Performance and Data Localization Requirements

Foreign investors are allowed to sign technical agreements with local investors without disclosing proprietary information. Foreign investors are not required to use domestic content in goods or technology or hire Pakistani nationals, either as laborers or as representatives on the company’s board of directors. There are no specific performance requirements for foreign entities operating in the country. Similarly, there are no special performance requirements on the basis of origin of the investment. However, onerous requirements exist for foreign citizen board members of Pakistani companies, including additional documents required by the SECP as well as vetting by the Ministry of Interior. Such requirements discourage foreign nationals from becoming board members of Pakistani companies.

Currently Pakistan does not restrict data transfer outside of the economy or country’s territory except when involving the banking industry. SBP requires financial institutions to have local data storage and any transfer of data outside of Pakistan requires formal approval from SBP. Pakistan is in the process of redrafting a “personal data protection” bill and in 2021 began implementing the “Social Media Rules” approved in 2020. Previous versions of the draft data protection bill and the currently approved Social Media Rules require data localization, registration with the Pakistan Telecommunication Authority (PTA), and establishing a physical office in Pakistan. The local presence requirement includes designating a compliance and a grievance officer. The rules are also slated to be applied to internet service providers. All companies and providers are instructed to restrict content contrary to the “security, prestige, and defense of the country.” In the ICT sector, there are currently no requirements for foreign providers to disclose source code or provide access to encryption. However, the Pakistani government has plans to introduce regulations requiring such disclosure.

Real Property

Although Pakistan’s legal system includes the enforcement of property rights for both local and foreign owner interests, and it does not discriminate based on gender, it offers incomplete protection for the acquisition and disposition of real property. There is no data with respect to the percentage of land with clear title, and land title problems are common. Except for the agricultural sector, where foreign ownership is limited to 60 percent, no specific regulations regarding the leasing of land or acquisition by foreign or non-resident investors exists. Corporate farming by foreign-controlled companies is permitted if the subsidiaries are incorporated in Pakistan. There are no limits on the size of corporate farmland holdings, and foreign companies can lease farmland for up to 50 years, with renewal options. In urban centers, undocumented possession of unoccupied land (squatting) is widespread. If an owner can prove that the land was acquired through legitimate means, government agencies are generally supportive of taking possession of their property.

Mortgages and liens exist, but there are no reliable recording systems. The absence of a centralized system to record mortgages and liens frequently create legal issues for determining property rights. The 1979 Industrial Property Order safeguards industrial property in Pakistan against government use of eminent domain without sufficient compensation for both foreign and domestic investors. The 1976 Foreign Private Investment Promotion and Protection Act guarantees the remittance of profits earned through the sale or appreciation in value of property.

Though protections exist for the legal purchase of land, land titles – even for unoccupied land – remain a challenge. Improvements to land titling have been made by the Punjab, Sindh, and Khyber Pakhtunkhwa provincial governments, which have dedicated significant resources to digitizing land records. In the newly merged tribal districts of Khyber Pakhtunkhwa some land is owned collectively by the tribes and some by individuals, and there are ownership records such as bills of sale or deeds for individually owned land recognized by the provincial government called “stamp papers.” The provincial government is currently undertaking a long-term land registration process in the newly merged districts for tribally owned land.

Intellectual Property Rights

Pakistan is currently on the Office of the United States Trade Representative’s (USTR) Special 301 Report Watch List.

In 2005, the Pakistani government created the Intellectual Property Office (IPO) to consolidate government control over trademarks, patents, and copyrights and coordinate and monitor IPR enforcement by law enforcement agencies. IPO’s creation consolidated policymaking but confusion surrounding enforcement agencies’ roles constrains IP enforcement. IP rights holders struggle to elicit government action against infringements across their IP portfolios, including dealing with piracy of online content. Although IPO established ten enforcement coordination committees to improve IP enforcement, coordination is insufficient and cumbersome. Weak penalties allow counterfeiters to evade punishment, and rights holders are often unclear on the correct forum in which to file a complaint.

The IPO as an institution has suffered from leadership turnover, limited resources, and a lack of government attention. Since 2016, the Pakistani government has taken steps to improve IPO’s effectiveness, bringing IPO under the responsibility of the Ministry of Commerce. The IPO Act 2012 stipulates a three-year term, 14-person policy board with at least five seats dedicated to the private sector. Section 8(2) of the IPO Act also stipulates, “the board shall meet not less than two times in a calendar year.” Despite this, the IPO Policy Board met just once in May 2021 and did not meet again until January 31, 2023.  Only 50 percent of IPO’s approved staffing positions are filled, although it expects to onboard additional staff in 2023. In 2016, Pakistan established three specialized IP tribunals:  one in Karachi covering the provinces of Sindh and Balochistan; one in Lahore covering Punjab; and one in Islamabad covering Islamabad and Khyber Pakhtunkhwa.  The IP tribunals suffer from extensive backlogs and a high turnover rate in judges.  Higher court justices, who often lack expertise in IP law, often overrule IP tribunal decisions by issuing injunctions overriding IP tribunal enforcement orders.

IPO is updating Pakistan’s IPR laws to reduce inconsistencies and improve enforcement.  As of February 2023, IPO was finalizing draft copyright and patent amendments that the IPO Board had approved for submission to the cabinet.  The Trademarks Amendment Act 2023 was submitted to the National Assembly for approval on February 6, 2023. In May 2021, Pakistan acceded to the Madrid Protocol on Trademarks. The IPO also expressed its intention to accede to the Marrakesh Treaty, the Patent Cooperation Treaty (PCT), as well as the WIPO Copyright Treaty and WIPO Performances and Phonograms Treaty.

Resources for Intellectual Property Rights Holders:

John Cabeca
Intellectual Property Counselor for South Asia
U.S. Patent and Trademark Office
Foreign Commercial Service
email: john.cabeca@trade.gov
website: https://www.uspto.gov/ip-policy/ip-attache-program 
tel: +91-11-2347-2000

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Capital Markets and Portfolio Investment

Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSX) in January 2016. As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSX is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions. Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSX and can repatriate profits, dividends, or disinvestment proceeds. The investor must open a Special Convertible Rupee Account with any bank in Pakistan in order to make portfolio investments. In 2017, the government modified the capital gains tax and imposed a 15 percent tax on stocks held for less than 12 months, 12.5 percent on stocks held for more than 12 but less than 24 months, and 7.5 percent on stocks held for more than 24 months.

The SBP and SECP provide regulatory oversight of financial and capital markets for domestic and foreign investors. Interest rates depend on the reverse repo rate (also called the policy rate). Pakistan has adopted and adheres to international accounting and reporting standards – including IMF Article VIII, with comprehensive disclosure requirements for companies and financial sector entities. Foreign-controlled manufacturing, semi-manufacturing (i.e. goods that require additional processing before marketing), and non-manufacturing concerns are allowed to borrow from the domestic banking system without regulated limits. Banks are required to ensure that total exposure to any domestic or foreign entity does not exceed 25 percent of a bank’s equity. Foreign-controlled (minimum 51 percent equity stake) semi-manufacturing concerns (i.e., those producing goods that require additional processing for consumer marketing) are permitted to borrow up to 75 percent of paid-up capital, including reserves. For non-manufacturing concerns, local borrowing caps are set at 50 percent of paid-up capital. While there are no restrictions on private sector access to credit instruments, few alternative instruments are available beyond commercial bank lending. Pakistan’s domestic corporate bond, commercial paper and derivative markets remain in the early stages of development.

Money and Banking System

SBP is the central bank of Pakistan. According to the most recent statistics published by the SBP (2022), only 24 percent of the adult population uses formal banking channels to conduct financial transactions, while 24 percent are informally served by the banking sector. The remaining 52 percent of the adult population do not utilize formal financial services. Women are more likely to be unbanked than men, and the lack of financial inclusion is widely cited as a constraint to women’s economic empowerment. The SBP’s most recent review of the banking sector, in July 2021, noted improving asset quality, stable liquidity, robust solvency, and a slow pick-up in private sector advances. The asset base of the banking sector expanded by 14.1 percent during 2022 due to a surge in banks’ deposits and investments, which increased by 12.8 percent and 19.4 percent respectively. The five largest banks, one of which is state-owned, controls 57.8 percent of all banking sector assets. Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan. There are no other restrictions to prevent foreigners from opening and maintaining a bank account.

SBP conducted the 9th wave of the Systemic Risk Survey in January 2022. The survey results indicated respondents perceived domestic inflation, exchange rate risk, deterioration in the balance of payments and volatility in commodity prices as key risks for the financial system. The risk profile of the banking sector remained satisfactory, and moderation in profitability and asset quality improved as non-performing loans as a percentage of total loans (infection ratio) was at 7.5 percent at the end of CY 2022. In CY 2022, total assets of the banking industry were estimated at $134.3 billion and net non-performing bank loans totaled approximately $3.5 million.

The penetration of foreign banks in Pakistan is low, making a small contribution to the local banking industry and the overall economy. According to a study conducted by the World Bank Group in 2018 (the latest data available), the share of foreign bank assets to GDP stood at 3.5 percent while private credit by deposit stood at 15.4 percent of GDP. Foreign banks operating in Pakistan include Citibank, Standard Chartered Bank, J.P. Morgan, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the Bank of China. International banks are primarily involved in two types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations. SBP requires foreign banks to hold at minimum $300 million in capital reserves at their Pakistani flagship location and maintain at least an 8 percent capital adequacy ratio. In addition, foreign banks are required to maintain the following minimum capital requirements, which vary based on the number of branches they are operating: 1 to 5 branches: $28 million in assigned capital; 6 to 50 branches: $56 million in assigned capital; over 50 branches: $94 million in assigned capital.

Pakistan’s first Islamic bank was established in 2002 when Meezan Bank acquired Société Générale. With an estimated asset base of $42 billion, Islamic banks now comprise over 20 percent of the banking sector in Pakistan. In April 2022 the Federal Sharia Court (FSC) ruled the Pakistani banking sector must be completely interest free by the end of 2027. SBP and five commercial banks appealed the FSC’s decision based on a lack of clarity regarding what percentage of the banking industry must be converted to be sharia-compliant. In November 2022, SBP and National Bank of Pakistan (a government-owned bank) withdrew their appeals of the FSC ruling after Finance Minister Ishaq Dar confirmed the government’s intent to implement the ruling. Economic experts estimate it will take several years of transition to convert a greater percentage of the banking sector to Islamic banking.

Foreign Exchange and Remittances

Foreign Exchange

As a prior action of its July 2019 IMF program, Pakistan agreed to adopt a flexible market-determined exchange rate. The SBP regulates the exchange rate and monitors foreign exchange transactions in the open market, with interventions limited to safeguarding financial stability and preventing disorderly market conditions. However, other government entities influence SBP decisions through membership on SBP’s board; the finance secretary and the BOI chair currently sit on the board. The government has managed the rupee through not only the SBP and the Finance Ministry, but also through commercial banks. However, to adhere to IMF program requirements, Pakistan allowed the rupee to float in January 2023, causing the currency to depreciate by more than 11 percent in a single day.

Banks are required to report and justify outflows of foreign currency (specifically U.S. dollars). Travelers leaving Pakistan may physically carry no more than $5,000 in cash. While cross-border payments of interest, profits, dividends, and royalties are allowed without submitting prior notification, banks are required to report loan information so SBP can verify remittances against repayment schedules. Although no formal policy bars profit repatriation, U.S. companies have faced delays in profit repatriation due to unclear policies and coordination between the SBP, the Ministry of Finance, commercial banks, and other government entities. Mission Pakistan has advocated for U.S. companies which have struggled to repatriate their profits. In addition, in 2022 SBP also delayed approvals of letters of credit and instructed commercial banks to prioritize certain sectors for foreign exchange for imports, although SBP lifted this guidance to banks in June 2023. Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, up to $100,000 per year per person, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees. There is no clear policy on convertibility of funds associated with investment in other global currencies; SBP takes an ad hoc approach in such cases.

Remittance Policies

The 2001 Income Tax Ordinance of Pakistan exempts taxes on any amount of foreign currency remitted from outside Pakistan through normal banking channels. Remittance of full capital, profits, and dividends over $5 million are permitted while dividends are tax-exempt. No limits exist for dividends, remittance of profits, debt service, capital, capital gains, returns on intellectual property, or payment for imported equipment in Pakistani law. However, large transactions that have the potential to influence Pakistan’s foreign exchange reserves require approval from the government’s Economic Coordination Committee. Similarly, banks are required to account for outflows of foreign currency. Investor remittances must be registered with the SBP within 30 days of execution and can only be made against a valid contract or agreement. Although no formal policy bars investment remittance, due to the current foreign exchange and balance of payments situation the Pakistani government is delaying investment remittances, including dividends, royalties, and other proceeds (see above section).

Sovereign Wealth Funds

Pakistan does not have its own sovereign wealth fund (SWF) and no specific exemptions for foreign SWFs exist in Pakistan’s tax law. Foreign SWFs are taxed like any other non-resident person unless specific concessions have been granted under an applicable tax treaty to which Pakistan is a signatory.

Privatization Program

Terms to purchase public shares of SOEs and financial institutions are the same for both foreign and local investors. In March 2019, the government announced plans to carry out a privatization program but postponed plans because of significant political resistance. The privatization of Pakistan’s national airline carrier stalled in 2016 when three labor union members were killed during a violent protest in response to the government’s decision to convert PIA into a limited company, a decision which would have allowed shares to be transferred to a non-government entity and pave the way for privatization. A bill passed by the legislature requires the government to retain 51 percent equity in the airline in the event it is privatized, reducing the attractiveness of the company to potential investors. The Privatization Commission describes the privatization process as transparent and non-discriminatory. In July 2022, the federal government approved the Inter-Government Commercial Transaction Act 2022 to enable the fast track approval of privatizations of SOEs on a government-to-government (G2G) basis. On March 31, 2023 the federal government approved the hiring of the International Finance Corporation as a transaction adviser for the potential privatization of long-term management of the Islamabad, Karachi, and Lahore international airports.

Additional Resources

Department of State

• Country Reports on Human Rights Practices;
• Trafficking in Persons Report;
• Guidance on Implementing the “UN Guiding Principles” for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
• U.S. National Contact Point for the OECD Guidelines for Multinational Enterprises; and;
• Xinjiang Supply Chain Business Advisory 

Department of the Treasury

• OFAC Recent Actions

Department of Labor

• Findings on the Worst Forms of Child Labor Report;
• List of Goods Produced by Child Labor or Forced Labor;
• Sweat & Toil: Child Labor, Forced Labor, and Human Trafficking Around the World and;
• Comply Chain.

Climate Issues

Pakistan remains vulnerable to the negative effects of global climate change. 2022 flooding covered one-third of the country in water and affected approximately 33 million Pakistanis. Pakistan and international partners estimated over $16 billion would be required for recovery and reconstruction. Pakistan also suffers from earthquakes, droughts, heatwaves, and forest fires, and faces challenges of water scarcity, with experts citing the country could cross the threshold of less than 1,000 cubic meters of fresh water per capita in the mid 2020s. Pakistan has set ambitious targets and policies to mitigate and adapt to climate change, but often lacks the resources and capacity for effective implementation. The government approved a National Clean Air Policy in March 2022 and updated its National Climate Change and National Wildlife Policies in 2021. These policies address sectoral issues in air, water, agriculture, forestry, coastal areas, biodiversity, and other vulnerable ecosystems. Pakistan also introduced the 2020-2023 National Energy Efficiency Strategic Plan, the 2020-2025 National Electric Vehicle Policy for 2-3 Wheelers and Commercial Vehicles, and the Alternative and Renewable Energy Policy in 2019.

Pakistan updated its National Determined Contributions (NDC) under the UN Framework Convention on Climate Change in October 2021. Pakistan has not announced a net-zero year for carbon emissions, but aims to reduce total greenhouse gas (GHG) emissions by 50 percent by 2030 emissions versus a business-as-usual (BAU) scenario. Under the revised target, the share of renewables in power generation will increase from 30 to 60 percent, relying primarily on hydroelectric generation. Pakistan joined the Global Methane Pledge and has committed to cut methane emissions by 30 percent by 2030. The Pakistani government also pledged in 2022 to develop 10,000 MW of new domestic solar power generation capacity, and released an open, competitive tender for the first 600 MW solar power project in February 2023. However, in 2021, the government rescinded tax exemptions on renewable technologies, instituting a 20 percent tax on the imports of solar panels and wind turbines and increasing sales tax for imported electric vehicles from 5 percent to 17 percent. Given Pakistan’s limited fiscal and financial means, the government cannot deliver on its climate commitments without additional external financing.

The federal government encourages the private sector’s role in implementing its climate ambition. Pakistan established a Public Private Partnership Authority (PPPA) in 2017 with a mandate to develop, procure, and implement infrastructure projects focused on adaptation and mitigation on a public-private partnership basis. Pakistan launched the “Indus Delta Blue” project in 2022, a voluntary carbon credit market which aims to restore 350,000 hectares of mangroves over 60 years, primarily in Sindh province. The government reported in March 2023 it has earned nearly $15 million so far from the sales of Indus Delta Blue carbon credits to international buyers in the voluntary carbon credit market. The Pakistani government is working to institute other market- and non-market-based approaches to diversify its climate funding, including nature performance bonds and green/blue bonds, but those are still in the formative stage. In May 2021, WAPDA launched its first “green” Eurobond, the Indus bond, a 10-year, $500 million bond with at a 7.5 percent interest rate, for the construction of the Diamer-Bhasha and Mohmand dams. The federal government’s flagship programs on environmental conservation are focused on adaptation, including the “Green Pakistan” program (afforestation) and the “Protected Areas Initiative” (a national parks system). To improve air quality, the National Clean Air Policy adopted the Euro-6 emission standards for vehicular transport and the government converted 11,000 traditional brick kilns to use emissions-reducing zig-zag technology.

The SBP approved “green banking” guidelines in 2017 to promote environmental risk management by commercial banks and to encourage the use of climate financing. Since then, all banks have established “green banking offices,” to better evaluate and manage the impact of environmental and climate changes on their credit portfolios. While considerable progress has been made toward adopting green and sustainable banking guidelines, the degree of implementation varies across the industry. The federal government’s public procurement rules are silent on environmental concerns, but the National Planning Commission’s guidelines on federal government projects requires environmental impact assessments prior to project commencement. In practice, environmental assessments in Pakistan are pro forma exercises with scant follow up or enforcement.

Resources to Report Corruption

Lt Gen (retd) Nazir Ahmad, Chairman
National Accountability Bureau
Ataturk Avenue, G-5/2, Islamabad
+92-51-111-622-622
chairman@nab.gov.pk

Justice (R) Zia Perwez, Chair
Transparency International
5-C, 2nd Floor, Khayaban-e-Ittehad,
Phase VII, D.H.A., Karachi
+92-21-35390408-9
ti.pakistan@gmail.com