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FOREIGN INVESTMENT POLICY PAKISTAN
The Pakistani government has implemented a new investment policy which ensures that all incentives, concessions and facilities provided to domestic investors for industrial investment are also available to foreign investors without discrimination. Pakistan has eliminated its requirement for prior government approval for most foreign investments. There are no restrictions on the amount of foreign equity in industrial investments. A number of tax concessions, a super tax rebate, and a tax exemption on investment, as well as guaranteed repatriation facilities have been introduced to accelerate industrial development in the country. While certain incentives are available to all foreign investors, invetors seeking additional incentives or concessions specific to their project must be obtain government approval. In recent years, succesive governments have made efforts to improve Pakistans investment climate by cutting red tape and offering incentives to both labour intensive and capital intensive projects which bring in suitable technology, managerial skills, and marketing expertise. Unfortunately, this pro-investment attitude is not always fully reflected in bereaucratic actions and procedures
PAKISTANS FOREIGN INVESTMENT POLICY
The Pakistani government has implemented a new investment policy which ensures that all incentives, concessions and facilities provided to domestic investors for industrial investment are also available to foreign investors without discrimination. Pakistan has eliminated its requirement for prior government approval for most foreign investments. There are no restrictions on the amount of foreign equity in industrial investments. A number of tax concessions, a super tax rebate, and a tax exemption on investment, as well as guaranteed repatriation facilities have been introduced to accelerate industrial development in the country. While certain incentives are available to all foreign investors, invetors seeking additional incentives or concessions specific to their project must be obtain government approval. In recent years, succesive governments have made efforts to improve Pakistans investment climate by cutting red tape and offering incentives to both labour intensive and capital intensive projects which bring in suitable technology, managerial skills, and marketing expertise. Unfortunately, this pro-investment attitude is not always fully reflected in bereaucratic actions and procedures. Cheap custom writing service can write essays on What Stops foregion Investment in Pakistan
INVESTMENT OVERVIEW
Foreign private investment is governed by the Foreign Private Investment (Promotion and Protection) Act of 176 administered by the Ministry of Industries. This act proveides security against expropriation and adequate compensation for acquisitions. It also guarantees to foreign investors the right to repatriate funds up to the amount of the original investments, profits, and any additional amount resulting from reinvested profits or appreciation of the investment. National treatment with respect to laws, rules and regulations relating to importing and exporting of goods is provided. A key aspect of economuc reform introduced by the government is that government approval for any project outside the specified list, regardless of its cost and size, is not required. With some exceptions for national security purposes, foreign firms and individuals may not take a 100 per cent equity position in projects. Nonresidents may freely move capital in and out of domestic securities markets, and no longer need prior approval of the central bank to repatriate profits. Corporate tax rates are being lowered under a phased programme. Prior approval from the IPB is required for setting up an industry from the specified list. Industries on the specified list where investment is restricted include arms and ammunition; security printing, currency and mint; high explosives; beverages made from imported concentrates; automobiles, tractors and farm machinery; petroleum blending plants; and radioactive substances. Manufacture of alcohol (except industrial alcohol) is, however, banned. Foreign private investment is also prohibited in agricultural land, forestry, irrigation, real estate (including land, housing and commercial office buildings), radioactive minerals, insurance, and health. Foreign investment in domestic banks is permitted only on a non-repatriable capital basis, though dividends may be remitted overseas. The requirement of obtaining a no objection certifacte (NOC) from the provincial governments for the location of a project has been a major bottleneck in the past. In an attempt to facilitate planning by potential investors, the provincial governments have compiled a list of areas where the establishment of industries is not considered desirable for any particular reason. Investors will now be free to establish industries outside these areas without obtaining a NOC from the concerned provincial government.
REPATRIATION OF EARNINGS
Repatriation is guaranteed by the Foreign Investment Act of 176. Official government policy states that, subject to the provisions of the Foreign Exchange Act of 147, a foreign investor in an industrial undertaking established after September 1, 154, may at any time repatriate in the currency of the country from which the investment originated profit, capital and the appreciation of capital investment. In addition, the Act grants a foreign investor the following 1. Foreign private investment shall not be subjected to more taxation on income than that applicable to investments made in similar circum- stances by citizens of Pakistan. . Relief from double taxation in the case of those countries with which Pakistan has an agreement for avoidance of double taxation. . Foreign ntionals employed in Pakistan are permitted to transfer their total savings. 4. Foreign nationals recruited by Pakistani firms are permitted to transfer their total savings ; and 5. Foreign investors are also entitled to repatriation of foreign currency loans in accordance with the terms and conditions of the loans. Reinvested capital may be treated as an investment for the purpose of repatriation with the approval of the State Bank of Pakistan. From time to time, the government may question the amount of the profits being remitted abroad to ensure that sufficient earnings are being retained in-country and that the solvency and financial standing of the Pakistani operation is assured.
INCENTIVES AND PERFORMANCE REQUIREMENTS
The governments investment policy provides that all incentives, concessions and facilities provided to domestic investors for industrial investment are also available to foreign investors without discrimination. A number of concessions, such as exemption from customs duties, sales tax concessions, a super tax rebate, and a tax exemption on investment, as well as guaranteed repatriation facilities, have been introduced to accelerate industrial development in the country. The following are incentives available to foreign investors
Standard Incentives A three year income tax waiver is granted for any industrial sector investment in developed areas (developed areas are near major cities such as Karachi and Lahore) throughout Pakistan. However, the income tax waiver is extended for a period of up to eight years if the investment is proposed for underdeveloped areas i.e., North West Frontier Province NWFP),Baluchistan (except Hub Chowki areas), federally administered tribal areas Azad Kashmir, divisions of Dera Gazi Khan and Bahawalpur in the province of Punjab, and the divisions of Sukkur and Larkana in the province of Sind. The waiver is available for any investment in the industrial sector initiated on or before June 0, 15. All investments established in underdeveloped areas are exempted from applicable import duties and sales taxes on imported machinery not manufactured locally. Goods produced by industries established between July 1, 11 and June 10, 16 in NWFP are exempted from the payment of the applicable sales tax for five years.
Incentives Under the Rural Industrial Package
A five-year income tax waiver is available is available to industries established in rural areas between December 1, 10 and June 0, 15. Imported machinery for rural industries is exempted from the payment of customs duties and sales taxes. The debt-equity ratio for all industrial sector investments using imported machinery is fixed at 700. For projects using domestic machinery the ratio is 800. Under the above programme, rural areas includes all rural areas except the following a) The major industrial estates of Hub, Nooriabad, Chunian, Hattar and Gadoon, including the first ten kilometres of territory adjacent to the estates; b) the municipal/cantonment limits of Karachi and a 40 kilometer area around the municipal boundary; c) The municipal/cantonment limits of Lahore and a 0km area around the municipal boundary; d) The existing limits of municipal corporations, their cantonment areas and a 10km area around these limits; e) Areas falling within the boundary of any municipality or cantonment and Islamabad capital territory.
INCENTIVES for SPECIAL INDUSTRIAL ZONES
The following incentives are available for special industrial zones 1. A 100 per cent exemption on customs duties applicable to imported machinery is available for all special industrial zones located in the Hub district in Baluchistan, the districts of Mianwali and Bhakkar and Khushab in Punjab, and the districts of Tharparkar and Dadu (excluding Taluka Kotri) in the Sindh. . A 50 per cent exemption on applicable custom duties for imported machinery is available for special industrial zones established in Islamabad capital territory, the districts of Lahore, Ferozewala, Gujranwala, Sailkot, Faislabad, Multan and Rawalpindi in Punjab, and the districts of Talukas of Kotri and Hyderabad in Sindh. . A 75 per cent exemption on customs duties for imported machinery applies to all special industrial zones established in areas other than those mentioned above. 4. Plant and machinery not manufactured locally and imported for the establishment of key industries, eg. biotechnology, electronics, fertiliser, fibre optics and solar energy, will be exempt from all customs duties and sales taxes. In addition, a four-year income tax exemption is available throughout Pakistan for these industries. Currently, Pakistani Government policies strongly favour investment proposals that have large export and local content components but amounts are negotiable. The local content policy, known as the deletion programme, requires that all investments which are based upon local assembly of imported parts have a deletion programme to raise local content. The Ministry of Industries monitors the deletion schedule closely and must approve any deviation.
PRIVATIZATION
Pakistan had planned to privatize approximately 0 state-held industrial concerns by the end of June 14 and complete its privatization programme by 16.
FORMATION AND TYPES OF PERMITTED BUSINESS ORGANIZATIONS
Foreign investors are urged to establish either private or public corporations. Subsidiaries of foreign domiciled corporations may be established. All companies must be on file with the Registrar of Companies. Partnerships and sole proprietorships may also be formed by foreign investors, including partnerships with domestic investors.
RIGHTS AND OBLIGATIONS OF FOREIGN INVESTORS
No prior approval or permission is neccessary in order to repatriate or remit abroad capital investments or income derived from such investment. Local financing is available from the Industrial Development Bank of Pakistan, the National Development Finance Corporation, the Regional Development Finance Corporation, and other institutions. Foreign investors are guaranteed equality with domestic ones.
FOREIGN INVESTMENT ASSISTANCE AGENCIES
Sources that can provide further information about foreign investment in Pakistan include
Investment Promotion Bureau
Kandawala Building
M.A. Jinnah Road
Karachi, Pakistan
Ph 1 7148
Fax 1 7157
Ministry of Industries
Block-A, Pak Secretariat Islamabad,
Pakistan
Ph 51 805
Fax 51 8510
Federation of Pakistan Chambers of Commerce & Industry
Federation House, Clifton,
Karachi, Pakistan
Ph 1 517
Fax 1 57077
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