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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 taxes or incentives. 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. 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.
In general, the government does not issue guarantees or jointly finance foreign direct investment projects. The government made an exception for CPEC-related projects and provided sovereign guarantees for the investment and returns, along with 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, Reko Diq, 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, amended in 2016, allows both domestically focused and export-oriented enterprises to establish companies and public-private partnerships within SEZs. 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.
Pakistan has a total of 23 designated special economic zones (SEZs); 10 of these were recently established by the government. All potential investors in SEZs are provided with a basket of incentives, including a ten-year tax holiday, one-time waiver of import duties on plant materials and machinery, and streamlined utilities connections. 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. None of the identified SEZs are fully developed, but they have attracted some investment and are available to any company, domestic or foreign. KP’s Peshawar Economic Zone Office, in an attempt to attract additional foreign investor interest, opened an Industrial Facilitation Center to provide potential investors with timely services and a one-stop shop for existing and new foreign investors. Pakistan intends to establish nine SEZs under CPEC’s second phase, which is focused on promoting Pakistan’s industrial growth and exports. The government plans to open the first CPEC SEZs in Rashakai, Khyber Pakhtunkhwa (KP); Faisalabad, Punjab; and Dhabeji, Sindh in 2020. Most CPEC SEZs remain in nascent stages of development and currently lack basic infrastructure.
Apart from SEZ-related incentives, 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 business officials have struggled to get business visas for travel to Pakistan. When permitted, business people typically receive single-entry visas with short-duration validity. Technical and managerial personnel working in sectors that are open to foreign investment are typically not required to obtain special work permits. In 2019 Pakistan announced updates to its visa and no objection certification (NOC) policies to attract foreign tourists and businesspeople; however, the new visa policies do not apply to U.S. passport holders. The new NOC policy implemented in May 2019 permits visitor travel throughout Pakistan, though travel near Pakistan’s borders still requires a NOC.
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. Likewise, 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 obtaining security clearance from the Ministry of Interior. Such requirements discourage foreign nationals from becoming board members of Pakistani companies.
Companies operating in Pakistan have not registered complaints with the embassy regarding encryption issues. 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. The Pakistan Telecommunication Authority (PTA) initially demanded unfettered access to Research in Motion’s BlackBerry customer information, but the issue was resolved in 2016 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. Recent draft regulations requiring social media companies to maintain local servers in Pakistan received significant criticism in the press and from service providers. The government subsequently allowed for additional comment and revisions to draft data protection legislation; the comment and revision process remains ongoing