Despite a relatively open foreign investment regime, Pakistan remains a challenging environment for foreign investors. An improving but unpredictable security situation, difficult business climate, lengthy dispute resolution processes, poor intellectual property rights (IPR) enforcement, and inconsistent taxation policies have contributed to lower Foreign Direct Investment (FDI), as compared to regional competitors. Pakistan ranked 136 out of 190 countries in the World Bank’s Doing Business 2019 rankings, gaining 11 places from 2018.
The Pakistan Tehreek-e-Insaf (PTI) government elected in July 2018 pledged to improve Pakistan’s economy, restructure tax collection, enhance trade and investment, and eliminate corruption. Since taking power, the PTI government has faced a rapidly expanding current account deficit and declining foreign reserves. Due to the inherited balance of payments crisis, the PTI government has worked on immediate needs to acquire external financing rather than medium- to long-term structural reforms. Progress has been slow on key structural reforms including broadening the tax base, reforming the tax authority, and privatizing state owned enterprises. Current tax policies negatively affect large businesses, as the government relies heavily on them for meeting its tax collection targets. The PTI government has not announced new policies to attract FDI yet, but is reportedly working on a five-year FDI strategy. The strategy reportedly aims to gradually increase FDI to USD 7.4 billion by Fiscal Year (FY) 2022-23.
The United States has consistently been one of the largest sources of FDI in Pakistan and one of its most significant trading partners. Two-way trade in goods between the United States and Pakistan exceeded USD 6.6 billion in 2018, a record for bilateral trade, and included a 4.3-percent increase in U.S. exports to Pakistan. Agriculture remained the largest growth area for U.S. exports. The Karachi-based American Business Council, an affiliate of the U.S. Chamber of Commerce, has 65 U.S. member companies, most of which are Fortune 500 companies operating in Pakistan across a range of industries. The Lahore-based American Business Forum – which has 25 founding members and 18 associate members – also assists U.S. investors. American companies have profitable investments across a range of sectors, notably, but not limited to, fast-moving consumer goods and financial services. Other sectors attracting U.S. interest include franchising, information and communications technology (ICT), thermal and renewable energy, and healthcare services.
In 2003, the United States and Pakistan signed a Trade and Investment Framework Agreement (TIFA) to serve as a key forum for bilateral trade and investment discussion. The TIFA seeks to address impediments to greater trade and investment flows and increase economic linkages between our respective business interests. Themost recent TIFA meeting was held in October 2016 in Islamabad, led by United States Trade Representative Michael Froman. The last TIFA intersessional, a working level meeting to review the decisions taken in TIFA, was in June 2017 in Washington.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||117 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||136 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||109 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$518||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita (USD)||2017||$1,580||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
In the past decade, Pakistan was unable to attract sufficient foreign investments to support desired growth objectives and remains a low priority country for foreign investors. The previous government recognized Pakistan’s need for foreign investment and introduced an Investment Policy, in 2013, to attract foreign investment and also signed an economic co-operation agreement with China, the China Pakistan Economic Corridor (CPEC), in April 2015. CPEC is focused mainly on infrastructure and energy production. Given that several large CPEC energy projects went online in 2018, Pakistan’s government has been able to develop sufficient power generation capacity in the country, though deficiencies in the transmission and distribution network remain.
The previous government also introduced incentives, which remain in place under the current PTI government, through the Strategic Trade Policy Framework (STPF) and Export Enhancement Packages (EEP). These incentives are largely industry-specific and include tax breaks, tax refunds, tariff reductions, the provision of dedicated infrastructure, and investor facilitation services. The current government is reportedly working on its own STPF, but has not announced a new policy. Pakistan also designated special economic zones (SEZs), which the PTI government continues to develop, which offer a separate basket of incentives to potential investors. None of the SEZs are fully operational, but they have attracted some investment and are available to any company, domestic or foreign.
Net inflows of FDI peaked at USD 5.4 billion in fiscal year FY2008. [Note: Pakistan’s fiscal year in runs from July 1 to June 30. End Note.] In FY2018, net FDI was USD 3.1 billion, approximately 14.8 percent higher than FY2017. According to the State Bank of Pakistan (SBP), the largest share of FDI (USD 997 million) was in the power sector (largely due to Chinese FDI in CPEC projects), followed by USD 708 million in the construction sector, and USD 400 million in financial business. Most analysts believe that the improved security environment, large energy projects under CPEC, and improvements in macroeconomic stability have played a key role in the improvement of FDI in FY2018. China remained the single largest FDI contributor in Pakistan, contributing more than 58 percent of Pakistan’s total FDI in FY2018. During the last five years, cumulative FDI inflows remained USD 10 billion, over 81 percent in non-manufacturing sectors. Since the PTI government started in 2018, Pakistan has signed Memorandum of Understandings (MoUs) with Saudi Arabia, the United Arab Emirates, and Malaysia. These MoUs agreed to bring investments of over USD 21 billion, largely in the areas of energy, agriculture and oil and gas exploration.
Notwithstanding the substantial increase in Chinese FDI, non-Chinese sources are limited. Compared to the region, low FDI is attributed to Pakistan offering competitive returns in only a few sectors. For example, multinational companies in the consumer goods sector have witnessed steady profits, while pharmaceuticals have been obstructed by opaque and restrictive government regulations. Power companies have also experienced an uptick in business since CPEC, but mostly by conventional energy providers; renewable energy providers have encountered obstacles in the form of inconsistent and discouraging policies from regulators. The current government is working on introducing new energy policy for the next 25 years. It aims to have 20-30 percent share of all energy come from renewable energy by 2030, compared to the current share of 2-3 percent. The ICT sector has risen steadily, albeit from a relatively low base. Growth has come from companies engaged in outsourcing services and software development.
Pakistan has a low tax-to-gross domestic product (GDP) ratio of approximately 13 percent in FY2018, which slightly increased from FY2017. [Note: For comparison, OECD countries averaged 32-34 percent over the past decade. End Note] Pakistan relies heavily on multinational corporations for a significant portion of the tax collections. Foreign investors in Pakistan regularly report that both federal and provincial tax regulations are difficult to navigate. The World Bank’s Doing Business 2019 report notes that companies pay 47 different taxes, compared to an average of 24.8 in other South Asian countries. On average, calculating these payments requires that business spend on average over 293 hours per year. In addition, companies frequently lament the lack of transparency in the assessment of taxes. Since 2013, the government has requested advance tax payments from companies, complicating businesses’ operations as the government intentionally delays tax refunds.
The Foreign Private Investment Promotion and Protection Act, 1976, and the Furtherance and Protection of Economic Reforms Act, 1992, provide legal protection of foreign investors and investment in Pakistan. All sectors and activities are open for foreign investment unless specifically prohibited or restricted 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.
The specialized investment promotion agency of Pakistan is the Board of Investment (BOI). The BOI is responsible for the promotion of investment, facilitating local and foreign investors for implementation of their projects, and to enhance Pakistan’s international competitiveness. They assist companies and investors who intend to invest in Pakistan and facilitate the implementation and operation of their projects.
Limits on Foreign Control and Right to Private Ownership and Establishment
The 2013 Investment Policy eliminated minimum initial capital investment requirements across sectors so that no minimum investment requirement or upper limit on the share of foreign equity is allowed, with the exception of the airline, banking, agriculture, and media sectors. Foreign investors in the services sector may retain 100 percent equity – subject to obtaining permission, a no objection certificate, or license from the concerned agency, as well as fulfilling the requirements of respective sectoral policy. In the education, health, and infrastructure sectors, 100 percent foreign ownership is allowed, while in the agricultural sector, the threshold is 60 percent – with an exception for corporate agriculture farming, where 100 percent ownership is allowed. There are no restrictions on payments of royalties and technical fees for the manufacturing sector, but there are restrictions on other sectors, including a USD 100,000 limit on initial franchise investments and a cap on subsequent royalty payments of 5 percent of net sales for five years. Royalties and technical payments are subject to a 15 percent income tax, and subject to remittance restrictions listed in Chapter 14, section 12 of the SBP Foreign Exchange Manual ( ). The tourism, housing, construction, and information and communications technology sectors have been granted “industry status,” eligible for lower tax and utility rates compared to “commercial sector” enterprises, including banks and insurance companies. Small-scale mining valued at less than PKR 300 million (roughly USD 2.6 million) is restricted to Pakistani investors.
With the exception of arms, ammunition, high explosives, radioactive substances, private security companies, currency, and consumable alcohol, foreign investors are allowed in all sectors. There are no restrictions or mechanisms that specifically exclude U.S. investors.
Since signing the World Trade Organization (WTO) Financial Services Agreement in December 1997, Pakistan’s financial services commitments have improved. Foreign banks can establish locally incorporated subsidiaries and branches, provided they have USD 5 billion 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 these requirements, foreign banks are limited to a 49-percent maximum 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 based on the bank’s net worth, adequacy of capital structure, future earnings prospects, credit discipline, and the needs of the local population. All banks are required to open 20 percent of their new branches in small cities, towns, and villages.
The Foreign Private Investment Promotion and Protection Act stipulates that foreign investments will not be subject to higher income taxes than similar investments made by Pakistani citizens. 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. Pakistani courts have not upheld some international arbitration awards.
Pakistan maintains investment screening mechanisms for inbound foreign investment. The BOI is the lead organization for such screening. Pakistan blocks foreign investments if the screening process determines the investment could negatively affect Pakistan’s national security.
Other Investment Policy Reviews
Pakistan has not undergone any third-party investment policy reviews in last three years. The International Monetary Fund assessed the nation’s overall macro economy under Article-IV consultation in 2018; however, that review was not specific to investment policy.
Pakistan works with the World Bank to improve its overall ease of doing business standing. The government has simplified pre-registration and registration facilities and automated land records to simplify property registrations. To improve cross border trade, it has also improved electronic submissions and processing of trade documents. Even so, Pakistan ranked 130 out of 190 countries in the World Bank Doing Business 2019 report’s “Starting a Business” category. Pakistan is ranked 26 out of 190 for protecting minority investors. Starting a business in Pakistan normally involves 10 procedures and takes at least 16.5 days.
The Securities and Exchange Commission of Pakistan (SECP) manages company registrations. Both foreign and domestic companies begin the registration by providing a company name and paying the requisite registration fees to the SECP. Companies then supply documentation on the proposed business, including information on corporate offices, location of company headquarters, and a copy of the company charter. 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 be required.
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) for industry specific taxes or incentives. For example, an SRO issued in February 2019 imposed additional labeling requirements for imported goods, creating non-tariff barriers.
Pakistan does not promote or incentivize outward investment. Although the government does not explicitly prohibit Pakistanis from investing abroad, the process of approvals is so cumbersome it normally takes years, discouraging potential investors.
2. Bilateral Investment Agreements and Taxation Treaties
Though U.S.-Pakistan Bilateral Investment Treaty (BIT) negotiations began in 2004 and closed the text in 2012, the agreement has not been signed due to reservations from Pakistani stakeholders. According to the BOI, Pakistan has signed BITs with 49 countries with only 27 entered into force.
Pakistan does not have a Free Trade Agreement (FTA) with United States. However, both countries have Trade and Investment Framework Agreement (TIFA) in place. Pakistan has trade agreements with China, Malaysia, Sri Lanka, Iran, Mauritius, and Indonesia. It is also a signatory of the South Asian Free Trade Agreement (SAFTA) and the Afghanistan Pakistan Transit Trade Agreement (APTTA). Pakistan is negotiating FTAs with Turkey and Thailand and re-negotiating its existing FTA with China.
A U.S.-Pakistan bilateral tax treaty was signed in 1959. Pakistan has double taxation agreements with 63 other countries and a multilateral tax treaty between the SAARC countries (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) came into force in 2011. The treaty provides additional provisions for the administration of taxes. In 2018, Pakistan updated its tax treaty with Switzerland and has approached the United States government to request the same.
In 2016, Pakistan signed the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Convention will help Pakistan exchange banking details with the other 80 signatory countries to locate untaxed money in foreign banks. Pakistan is a member of the Base Erosion and Profit Shifting (BEPS) framework and will automatically exchange country-by-country reporting as required by the BEPS package.
4. Industrial Policies
Pakistan currently does not provide any formal investment incentives such as grants, tax credits or deferrals, access to subsidized loans, or reduced cost of land to individual foreign investors. The 2013 investment policy revolves around business facilitation and not direct incentives. However, in 2016, the government reduced or eliminated custom duties on the imports of equipment and machinery and introduced temporary tariff concessions for the automobile manufacturing sector. The government does not offer research and development incentives. Nonetheless, 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 or jointly finance foreign direct investment projects. However, the government made an exception for CPEC related projects; the Government of Pakistan provided sovereign guarantees for the investment and returns, and provided joint financing for specific projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Providing unique fiscal and institutional incentives exclusively for export-oriented industries, the government established the first Export Processing Zone (EPZ) in Karachi in 1989. Subsequently, EPZs were established in Risalpur, Gujranwala, Sialkot, Saindak, Gwadar, RekoDek, and Duddar; today, only Karachi, Risalpur, Sialkot, and Saindak remain operational. EPZs offer investors tax and duty exemptions on equipment, machinery, and materials (including components, spare parts, and packing material); indefinite loss carry-forward; and access to the EPZ Authority (EPZA) “Single Window,” which facilitates import and export authorizations. The 2012 Special Economic Zones Act allows both domestically focused and export-oriented enterprises to establish companies and public-private partnerships within SEZs. Despite offering substantial financial, investor service, and infrastructure benefits to reduce the cost of doing business, Pakistan’s SEZs have struggled to attract investment due to lack of basic infrastructure.
Pakistan intends to establish nine SEZs under China Pakistan Economic Corridor (CPEC). The government plans to inaugurate the first one in Rashakai, Khyber Pakhtunkhwa, in June 2019. Most CPEC SEZs remain in nascent stages of development.
Apart from SEZ-related incentives, the government offers special incentives for Export-Oriented Units (EOU) – a stand-alone industrial entity exporting 100 percent of its production. Export-Oriented Units incentives include duty and tax exemptions for imported machinery and raw materials, as well as the duty-free import of vehicles. Export-Oriented Units 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 business officials have struggled to get business visas to Pakistan. When permitted, business people typically received single-entry visas with a short duration validity. Once in country, Pakistan required NOCs to visit locations outside of Islamabad, Karachi, or Lahore, making it difficult to inspect factories, supply chains, or goods outside of these three cities. Pakistan announced updates to its visa and NOC policies to attract foreign tourists and businesspeople, but the more open polices have not been fully implemented. New visa policies will not apply to U.S. passport holders. Technical and managerial personnel working in sectors that are open to foreign investments are typically not required to obtain special work permits. The new NOC policy permits travel throughout Pakistan, with exceptions for travel near Pakistan’s borders that still requires an NOC.
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. Likewise, there are no specific performance requirements for foreign entities operating in the country, and the same investment incentives are available to both local and foreign investors. Similarly, there are no special performance requirements on the basis of origin of the investment.
Foreign investors are allowed to sign technical agreements with local investors without disclosing proprietary information. According to the country’s 2013 Investment Policy, manufacturers introducing new technologies that are unavailable in Pakistan receive the same incentives available to companies operating in Pakistan’s SEZs.
The embassy has not received complaints regarding encryption issues from IT companies operating in Pakistan. Officially, accreditation from the Electronic Certification Accreditation Council (under the Ministry of Information Technology) is required for entities using encryption and cryptography services, though it is not consistently enforced. Despite the company’s April 2016 announcement that it would employ end-to-end encryption, WhatsApp is widely used. The Pakistan Telecommunication Authority (PTA) initially demanded unfettered access to Research in Motion’s BlackBerry customer information, but the issue was resolved when the company agreed to assist law enforcement agencies in the investigation of criminal activities. PTA and SBP prohibit telecom and financial companies from transferring customer data overseas. Other data, including emails, can be legally transmitted and stored outside the country.
6. Financial Sector
Capital Markets and Portfolio Investment
The Government of Pakistan does not provide any investment incentives except the incentives offered to attract new capital inflows in specialized sectors and SEZs. These incentives for specific sector and SEZs include tax exemptions, tariffs reductions, infrastructure, and investor facilitation services in designated special economic zones. Since 1997, Pakistan has established and maintained a largely open investment regime. The PML-N government introduced the Investment Policy 2013 that further liberalized investment policies in most sectors. However, in addition to expressing concern about the deteriorating law and order situation, foreign investors continue to advocate for Pakistan to improve legal protections for foreign investments, protect intellectual property rights, and an established a clear and consistent policy of upholding contractual obligations and settlement of tax disputes.
Pakistan’s three stock exchanges (Lahore, Islamabad, and Karachi) merged to form the Pakistan Stock Exchange (PSE) in January 2016. As a member of the Federation of Euro-Asian Stock Exchanges and the South Asian Federation of Exchanges, PSE is also an affiliated member of the World Federation of Exchanges and the International Organization of Securities Commissions. In 2016, the government imposed a capital gains tax of 10 percent on stocks held for less than six months, and eight percent on stocks held for more than six months but less than a year and no capital gains tax for holdings that exceed 12 months. However, in 2017, the government modified the capital gain tax and imposed 15 percent 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 2012 Capital Gains Tax Ordinance appointed the National Clearing Company of Pakistan Limited to compute, determine, collect, and deposit the capital gains tax. Per the Foreign Exchange Regulations, foreign investors can invest in shares and securities listed on the PSE 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.
The free flow of financial resources for domestic and foreign investors is supported by financial sector policies, with the SBP and SECP providing regulatory oversight of financial and capital markets. Interest rates depend on the reverse repo rate (also called the policy rate). The SBP steadily lowered the policy rate from a high of 10 percent at the fourth quarter 2014 to 6 percent in November 2017, but has increased the rate to 10.75 percent in March 2019.
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.
The banks are required to ensure that total exposure to any domestic or foreign entity should not exceed 25 percent of banks’ equity with effect from December 2013. 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 early stages of development. There are a limited number of venture capitalists operating in Pakistan.
Money and Banking System
The State Bank of Pakistan (SBP) is the central bank of Pakistan.
According to the most recent statistics published by the SBP, only 23 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 53 percent of the adult population do not use any formal financial services.
The overall financial sector has done well in Pakistan over the last few years. The SBP’s December 2018 banking sector review noted improving asset quality, stable liquidity, robust solvency, and increased investment in the banking sector. The asset base of the banking sector expanded by 7.3 percent during 2018. The risk profile of the banking sector remained satisfactory because profitability and asset quality improved as the non-performing loans to gross loans (infection) rate declined to its lowest level in a decade, 8 percent, at the end of 2018.
The five largest banks, one of which is state owned, control 52.3 percent of all banking sector assets. In 2018, total assets of the banking industry were USD 140.6 billion. As of December 2018, net non-performing bank loans totaled approximately USD 785.7 million – 1.4 percent of net total loans.
The penetration of foreign banks in Pakistan is relatively low and do not account for a significant portion of the local banking industry and overall economy. According to a study conducted by the World Bank Group in 2018, the share of foreign banks to GDP stands at 3.5 percent. In the wake of the global financial crisis, foreign banks have scaled down their operations and businesses in Pakistan mainly due to policies to shrink operations in small and struggling markets. Banks closing down or limiting their operations included the Royal Bank of Scotland and Citibank, which sold its consumer banking portfolio to Habib Bank Limited and restricted its operations to corporate banking. Other foreign banks operating in Pakistan are Standard Chartered Bank, Deutsche Bank, Samba Bank, Industrial and Commercial Bank of China, Bank of Tokyo, and the newly established Bank of China.
International banks are involved in two major types of international activities: cross-border flows, and foreign participation in domestic banking systems through brick-and-mortar operations.
SBP requires that foreign banks hold at minimum USD 300 million in capital reserves at their Pakistan flagship location, and maintain at least an eight 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: USD 28 million in assigned capital;
- 6 to 50 branches: USD 56 million in assigned capital;
- Over 50 branches: USD 94 million in assigned capital.
Foreigners require proof of residency – a work visa, company sponsorship letter, and valid passport – to establish a bank account in Pakistan. There are no further other restrictions to prevent foreigners from opening and operating a bank account. However, most foreigners prefer to use a foreign bank to conduct their banking transactions.
Foreign Exchange and Remittances
SBP maintains strict controls over the exchange rate and monitors foreign exchange transactions in the open market. Banks are required to report and justify outflows of foreign currency. Travelers leaving or entering Pakistan are allowed to physically carry a maximum of USD 10,000 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. Exchange companies are permitted to buy and sell foreign currency for individuals, banks, and other exchange companies, and can also sell foreign currency to incorporated companies to facilitate the remittance of royalty, franchise, and technical fees. Exchange companies are playing an increasingly important role in facilitating remittances from Pakistanis working overseas.
There is no clear policy on convertibility of funds associated with investment to other global currencies. SBP deals with such cases and opts for an ad-hoc approach on a case to case and situational basis.
The embassy has provided advocacy for U.S. companies that have struggled to repatriate their profits. Although no formal policy bars profit repatriation, U.S. companies have faced delays in repatriation from the SBP.
The Ministry of Finance and the SBP jointly manage Pakistan’s exchange rate. Even though the exchange rate is determined by the market, over the past few years the SBP has intervened to stabilize the exchange rate or manage its decline. Falling foreign exchange reserves have constrained the SBP’s ability to directly intervene in the market by injecting dollars into it.
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 USD 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.
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.
 Even though the value of total assets has increased in PKR, due to devaluation of the rupee, the converted number in USD has decreased from 2017.