FDI Plummets in Pakistan as Tax Policies Frazzle Firms

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions Saved Articles My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomePMN BusinessFDI Plummets in Pakistan as Tax Policies Frazzle FirmsAt a moment when Pakistan is enjoying one of its strongest diplomatic positions in years, foreign investment inflows remain low.Author of the article:Bilal Hussain, Faseeh Mangi and Tooba Khan You can save this article by registering for free here. Or sign-in if you have an account.(Bloomberg) — Pakistan’s foreign direct investment inflows have fallen to the lowest since 2023, as business leaders complain of erratic tax policies driving away business.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountData released on Friday showed a 34% decline in year-on-year investment, with just $1.64 billion net trickling into the country of 250 million people over the past 12 months. Major multinational companies have packed up since an economic crisis in 2022, including Procter & Gamble Co., the world’s largest consumer goods maker which indirectly created thousands of jobs in Pakistan, and Telenor ASA, a top taxpayer which invested $2 billion over two decades, both at the end of last year. TotalEnergies SE, Shell Plc, and Uber Technologies Inc. have also departed, while other foreign companies, including Microsoft Corp., which spent a quarter century in the capital Islamabad, have handed over to local partners or scaled back operations.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe contribution of multinational companies “is not just in dollars and cents,” said Abdul Aleem, the head of the Overseas Investors Chamber of Commerce and Industry in Pakistan. “The biggest damage to Pakistan is the top talent and skills they take with them. Most of the CEOs that are working in Pakistan once worked in those companies.” Multiple executives involved with companies that have left or downsized since 2023 said that a severe and inconsistent tax policy was a dominant reason driving away business. Asking not to be identified because they did not have permission to speak to the media, several spoke about how it became harder to plan for the long-term or predict profitability.Caught between pressure from the International Monetary Fund to increase revenue and a large populace unable or unwilling to pay income taxes, Pakistani authorities have long resorted to squeezing companies. Businesses in the country currently pay up to 44% tax, made up of a baseline corporate tax rate of 29% and a basket of add ons that include employee protection funds and a progressive super tax.The super tax, imposed on the highest-earning businesses, was first introduced as a one-off emergency tax but was repeatedly extended. A legal challenge against it earlier this year failed, although the government slightly reduced the rate in the latest budget. “Pakistan is a significant outlier, and it is paying the price,” Pakistan’s Chamber of Commerce said in a statement in May. The corporate tax rate exceeds the 20% rate imposed in Thailand and Vietnam.Telenor and Shell declined to comment, while Procter & Gamble, Uber and TotalEnergies did not respond to requests. Microsoft said that they changed their operating model in Pakistan as a part of a “regular process of business evaluation and optimization”. Khurram Schehzad, adviser to Finance Minister Muhammad Aurangzeb, said the exits are due to companies changing their global strategies. He added that there have been 79 new foreign entrants between 2023-2025, compared with 19 exits.Still, total FDI inflows remain low, at a moment when Pakistan is enjoying one of its strongest diplomatic positions in years.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.Islamabad helped to broker peace talks between the US and Iran, building on a warming relationship with US President Donald Trump. The government has seized on the chance to court investment in mining, oil and crypto. Meanwhile Pakistan’s closest allies have signaled some confidence in the market. Saudi Arabian Oil Co. has taken a stake in a local energy provider and Chinese companies meanwhile are behind the largest share of foreign investment, boosted by the arrival of electric vehicle makers including BYD Co.Pakistan’s key weakness remains its reliance on imports, particularly for energy, leaving it dangerously exposed. A crushing economic crisis in 2022 — fueled by political chaos and compounded by a global energy price shock — brought the nation close to bankruptcy, as the currency lost almost half its value and foreign reserves plummeted to critically low levels.Bailouts by the IMF in the following years supported by loans from friendly countries helped to stabilize the economy. Along with the financial aid came the need for economic austerity and high taxes.The pharmaceutical sector has been particularly badly hit by a wave of exits by foreign manufacturers, according to Ayesha Tammy Haq, the executive director of Pharma Bureau, the representative body of multinational pharmaceutical companies. She said policy uncertainty created a “trust deficit” between company executives and the government, compounded by weak enforcement of intellectual property laws that allow low quality, copy-cat drugs to flourish in the market.“There’s a lot of people who cannot get their medicines now because they’re just not available in Pakistan,” she said in an interview. “We have become reliant on imports.”In the meantime, Pakistan’s external account is instead kept relatively healthy by remittances from overseas Pakistanis, which reached a record $41.6 billion in the last fiscal year which ended in June, accounting for more than 9% of GDP. That cash flow has long outpaced exports which have barely moved from around $30-$32 billion and dwarfs FDI.Critics say the cushion provided by remittances reduces the pressure on policymakers to make tough decisions for the long-term economic sustainability of the country, such as export and FDI growth. Javed Kureishi, the CEO of Pakistan Business Council, a business policy advocacy group, said the latest FDI figures are “extremely disappointing” and described new entrants replacing departing foreign companies as something “you can’t celebrate”.“MNCs need stable policies,” he said. “The wrong policy is better than constantly changing policies.”Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.