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The consumer

Consumer Profile
After a decade and a half of steady growth, Pakistan's GDP per capita has seen its first decline in years: USD 1,260 in 2020 (IMF), ranking somewhere between Bangladesh and Afghanistan. The population is booming with youth aged 0-24 accounting for 55.31% of the total in 2020 and a net growth rate of 1.99% in 2021 (CIA World Factbook estimations).
While the income inequality is relatively low compared to its region (Gini index score of 33.5 points, 154th worldwide - United Nations Development Programme, latest data available), Pakistan offers a wide range of consumer markets, owing to its large population (over 216 million, fifth-largest in the world - World Bank, latest data available).
Pakistani consumers are now becoming more and more brand conscious. This trend is generating demand for some products that were previously unknown in the country, particularly in sectors like apparel and household consumer durable items.
Despite increases in wages, Pakistani consumers continue to spend an important share of their income on basic needs such as food (39.5% of consumer expenditures) (Economic Research Service of the United States Department of Agriculture, latest data available).
Consumer Behaviour
Pakistani consumer is traditionally price-sensitive owing to their general low income; however, household wealth has been growing steadily in recent years (+18.3% between 2015 and 2019 - HIES, latest data available) and the burgeoning middle class is among the top 20 largest in the world (Credit Suisse Global Wealth Report, latest data available). Consumer confidence has been boosted to a great extent by improvements in political stability and security conditions. Consumers have more disposable income, which they spend increasingly on holiday and electronics.
Consumers Associations
Consumer Association of Pakistan
 

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Importing & Distributing

Import Procedures

The following documents are required for imports:

  1. Bill of lading;
  2. Invoices;
  3. Packing list;
  4. Certificate of origin;
  5. Copies of letters of credit (triplicate); and
  6. Insurance certificates.
For more details on import procedures, please visit: Pakistan Customs
Distribution market players

The retail sector in Pakistan is experiencing impressive growth as global brands and outlets enter the market. Local retailers are also extending their activities to compete with their biggest foreign competitors.
There are two types of mass retailers:

  • Pakistani mass retailers:

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Operating a Business

Type of companies

Sole Proprietorship
Number of partners: One shareholder.
Capital (max/min): No minimum capital required
Shareholders and liability: Unlimited liability
Partnership
Number of partners: Minimum of 2 with a maximum of 20.
Capital (max/min): No minimum capital required (generally it is PKR 100,000)
Shareholders and liability: Liability of the partners is unlimited
Private Limited Company
Number of partners: Minimum number is 2, while as the maximum number is 50.
Capital (max/min): Minimum paid up capital of PKR 100,000
Shareholders and liability: Limited liability to the amount contributed.
Public Limited Company
Number of partners: Minimum number is 3, while as there is no limit on the maximum number of members/shareholders. Listed Public Limited companies must have at least 7 members.
Capital (max/min): Minimum paid up capital of PKR 100,000. Public limited companies have a minimum capital requirement of PKR 200 million
Shareholders and liability: The liability of a member is limited to the face value of the shares he owns
 
Setting Up a Company Pakistan South Asia
Procedures (number) 5.0 7.1
Time (days) 16.5 14.6

Source: Doing Business - Latest available data.

 

Cost of Labour

Minimum Wage
In 2020, the government increased the minimum wage to PKR 17,500 per month.
Average Wage
In 2018, the average hourly gross wage was PKR 90 according to the ILO (latest available data).
Social Contributions
Social Security Contributions Paid By Employers: 6% of covered earnings (7% of earnings up to Rs. 5,000 in Balochistan province) + 5% for pension each month.
Social Security Contributions Paid By Employees: 1% of covered earnings for pension + Rs. 40 for healthcare each month. 
 

Intellectual Property

National Organisations
The Intellectual Property Organisation of Pakistan (IPO-Pakistan).
Regional Organisations
None
 

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Tax Rates

Consumption Taxes

Nature of the Tax
Sales Tax
Tax Rate
17% for goods and for telecommunication services under the federal law.
For services, 16% for Islamabad and Punjab, 15% for KPK and Balochistan and 13% for Sindh
Reduced Tax Rate
The sales tax reduced rates for goods are: 1%, 1.5%, 2%, 5%, 6%, 7%, 8%, 10%, 12%.
The sales tax reduced rates for services are: 0%, 2%, 3%, 5%, 8%, 10%, 15%, 17% and 19.5%.

Zero-rated items include: export of goods, supplies and repair and maintenance of certain ships and aircraft, supplies to diplomatic missions and diplomats, supplies of raw materials, components, and goods for export processing zones, supplies of locally manufactured plant and machinery to export processing zones and supplies of certain specified machinery to the exploration and production sector, supplies to exporters.
Exempt items include: live animals and live poultry, live plants, vegetables, pulses, edible fruits (excluding imported fruits), certain spices, sugar cane, edible oils, etc., milk preparations, newsprints, newspapers, journals, periodicals, and books, agricultural produce not subjected to any process.

Due to COVID-19 pandemic, the federal government has temporarily exempted sales tax on import and further supply of oxygen gas, oxygen cylinders, cryogenic tanks and specified medical and testing equipment, such as real-time PCR systems, biosafety cabinets, vortex machines.

Click here for further information.

Other Consumption Taxes
A Federal Excise Duty (FED) is levied on goods manufactured or imported into Pakistan at varying rates. The sales tax on services, which replaces federal excise duties for services, is levied at rates ranging from 13% to 16%.
 

Corporate Taxes

Company Tax
29%
Capital Gains Taxation
Capital gains are generally taxed at the standard rate of corporation tax. Capital gains on the sale of fixed assets held for more than one year are reduced by 25% for the calculation of the tax base (i.e. 75% of capital gains are taxed at 30%). Gains on the sale of listed securities acquired on or after 1 July 2013 are subject to a 15% tax; whereas capital gains on the sale of listed securities acquired before that date are exempt from tax.
Main Allowable Deductions and Tax Credits
Depreciation of property, plant and equipment is tax-deductible at rates ranging from 10% to 100%. The cost of intangible assets (intellectual property, among others) bringing in profit for more than one year is deductible over their useful life (up to ten years). The deduction of goodwill follows these same rules.
Start-up fees can be deducted over a period of five years.
Interest charges and bad debt are generally deductible. Donations to public schools and health centres, universities and non-governmental organisations are eligible for a tax credit of up to 20% of taxable income.
Fines that are not paid for breach of the law are deductible.
Scientific research expenditures incurred in Pakistan for the purpose of generating taxable income are fully deductible.
Trading losses (except those resulting from speculative business) may be offset against taxable income earned in the same year. Operating losses may be carried forward and set off against the profits of the succeeding six years of the same business (eight years for losses incurred by a resident company engaged in the hotel business in Pakistan relating to a tax year commencing on or after the first day of July 2020). The carryback of losses is not permitted.
Other Corporate Taxes
Capital duty is imposed on capital contributions (variable depending on the amount of capital). A property tax is levied at the provincial level, while property transfer is not subject to tax.
Social security contributions payable by the employer amount to 6% of salary (calculated on wages capped at PKR 600 per day or PKR 15,000 per month).
Stamp duties are levied on the issue and disposal of shares at a rate of 0.5% and 1.5% of the face value of the shares, respectively (with a minimum contribution of PKR 1).
Other Domestic Resources
Federal Board of Revenue (FBR)
Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.
 

Double Taxation Treaties

Countries With Whom a Double Taxation Treaty Have Been Signed
See the list of the Double Taxation Agreements
Withholding Taxes
Dividends: 12.5% (non-resident corporations)/15% (residents; non-resident individuals), Interest: 15% (residents)/10% (non-residents), Royalties: 15% (residents)/10% (non-residents).

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