Bilateral Investment Agreements and Taxation Treaties

Pakistan has signed Bilateral Investment Treaties (BITs) with 49 countries, with only 27 entered into force. Pakistan has free or preferential 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 free trade agreements with Turkey and Thailand.

Pakistan has double taxation agreements with 63 other countries.  A multilateral tax treaty between the SAARC countries (Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) came into force in 2011 and provides additional provisions for the administration of taxes.  In 2018, Pakistan updated its tax treaty with Switzerland.  Pakistan relies heavily on multinational corporations for a significant portion of its tax collections.  Foreign investors in Pakistan regularly report that both federal and provincial tax regulations are difficult to navigate and tax assessments are non-transparent.  Since 2013, the government has requested advance tax payments from companies, complicating businesses’ operations as the government intentionally delays tax refunds.  The World Bank’s Doing Business 2020 report notes that companies pay 34 different taxes, compared to an average of 26.8 in other South Asian countries.  On average, calculating these payments requires that businesses spend over 283 hours per year.

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