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ANALYSIS OF

PAKISTANI INDUSTRIES

PRESENTATION

COST OF
DOING
BUSINESS

SUBMITTE
D BY:

ARSALAN WASEEM
(07192)
FAIQ MEHFOOZ
(07383)
Syed Muhammad
Raza (07380)
UMER RIZWAN
(07191)

Submitted to: Ms.


Tahira Jaffery
Class Number: 40162
Class Timings: 11:30
AM- 12:45 PM
Tuesday/Thursday

TABLE OF CONTENTS

Pakistans Economy...................................................................................................2

ANALYSIS OF PAKISTANI INDUSTRIES


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Factors Effecting Cost OF Doing Business...............................................................4
Starting a Business.................................................................................................5
Labor Force:...........................................................................................................6
TRADING ACROSS THE BORDER....................................................................9
REFORMS:.......................................................................................................10
INFLATION.........................................................................................................11
SOME CAUSES OF INFLATION:..................................................................12
RELATIONSHIP BETWEEN INFLATION RATE AND EXCHANGE RATE
...........................................................................................................................13
ELECTRICITY....................................................................................................15
Registering property.............................................................................................16
Pakistans ranking in registering property:.......................................................18
TAXES.................................................................................................................19
INDUSTRY ANALYSIS.........................................................................................22
Cement Industry.............................................................................................22
Textile Industry..............................................................................................24
BIBLIOGRAPHY...................................................................................................30

Pakistans Economy

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Pakistan has a semi-industrialized economy which mainly encompasses
textiles,
chemicals, food processing, agriculture and other industries. The
economy performed better in 2011-12 than many other developed and
developing economies. Economic growth of Pakistan is seen through
gross domestic product purchasing power parity, which was estimated
to be $ 494.8 billion in 2011. Pakistans estimated GDP for the year
2011 was USD 210.6 billion, while real growth rate in 2011 as per
statistical data was found to be around 2.4 percent.
The agriculture sector is an essential component of Pakistans
economy. The
agriculture sector recorded a growth of 3.1 percent against 2.4 percent
last year. Overall, the commodity producing sectors and especially the
agriculture sector have performed better. The Services sector recorded
growth of 4.0 percent in 201112. According to the Labor Force Survey 2010-11, Pakistan has a labor
force of 57.2
million people which is 0.9 million more than the last year. The largest
industries of the
country are textile, cement, agriculture, fertilizer, steel, tobacco,
edible oil, pharmaceuticals, construction, materials, shrimp,
sugar, food processing, chemical and machinery.
Export of goods is a major concern for Pakistan economy. Exports in
Pakistan decreased to 207806 PKR Million in January of 2015 from
217338 PKR Million in December of 2014. Exports in Pakistan averaged
33895.02 PKR Million from 1957 until 2015, reaching an all time high of
275483 PKR Million in September of 2013 and a record low of 51 PKR
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Million in April of 1958. The major item of exports includes cotton fiber,
vegetables, rice, electrical appliances, textiles, clothing, surgical
instruments.

Pakistan main exports are mineral fuels (19 percent of the total
shipments), manufactured goods (19 percent) and beverage and
tobacco (13 percent). Others include: food and live animals (11
percent), crude materials (11 percent), chemicals (11 percent),
machinery (8 percent) and miscellaneous articles (8 percent). Main
export partners are United States (13.6 percent), China (11 percent of
the total export), United Arab Emirates (8.5 percent) and Saudi Arabia
(8.5 percent). This page provides - Pakistan Exports - actual values,
historical data, forecast, chart, statistics, economic calendar and news
The present government is earnestly trying to restore the confidence of
foreign

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investors and has adopted a positive approach for improving
investment climate in various fields of real estate, telecommunications,
software, energy, fertilizer, aerospace, textiles, steel, ship building,
arms manufacturing, cement and automotives.

Factors Effecting Cost OF Doing Business


There are a number of factors which effect cost of doing business, and
they are

Starting a Business
Labor Force
Trading across borders
Inflation
Electricity
Registering Property
Taxes
Interest Rates

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Starting a Business
Doing Business sheds light on how easy or difficult it is for a local
entrepreneur to open and run a small to medium-size business when
complying with relevant regulations.
Pakistan is ranked among the bottom half of the rankings of the
countries where cost of doing business is quite high. It is not high for
any particular reason but because of our bureaucracy totally sitting on
their seats without taking actions or decisions in time. Unless there is
some pressure or incentive for them, the normal businesses
particularly the small and medium businesses have serious problems
at the hands of bureaucracy. Even if we have investors who are
welcomed by the federal government, when it comes down to
provincial and local governments there are given a run around the
land is not available, the water is not available, the gas is not available,
electricity is not available, road is not available. Lack of coordination
among various government agencies, innumerable laws and
regulations that are antiquated and outdated have proved to be
serious impediments. Labor laws, inspections by multiple agencies, the
delays in the court system, infringement of intellectual property rights
and evasion of taxes by competing firms in the informal sector have
rendered some of the well established firms unprofitable, or the
feasibility of starting near ventures questionable.

Pakistan made starting a business easier by introducing an electronic


registration system, allowing online registration for sales tax and eliminating the
requirement to make the declaration of compliance on a stamped paper.

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Labor Force:
Pakistan is the sixth most populous country in the world. The estimated
labor

force

is

55.8

million.

Labor force comprises all persons ten years of age and above, who
fulfills

the

requirements

for

including

among

employed

and

unemployed. According to this concept, the employed force is


approximately 49.9 million (unemployed-2.69 million)

Labor Force

37%

Agriculture

20%

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43%

Industries

Services

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Pakistan has five different laws relating to the payment and fixation of
wages. These are:

Payment of Wages Act, 1936


The Minimum Wages Ordinance, 1961
Pakistan Minimum Wages for Unskilled Workers Ordinance, 1969
Coal Mines (Fixation of Rates of Wages) Ordinance, 1960
Newspaper Employees (Condition of Service) Act 1973
Civil servants Act 1973 (Article71)

Pakistan's first minimum wage was introduced in 1992 when it was set
at Rs.1,500 (US$ 14.75) per month. It was, subsequently, raised:
in 1996 to PKR 1,650 (US$ 16.22) per month
in 1998 to PKR 1,950 (US$ 19.17) per month
in 2006 to PKR 4,000 (US$ 39.33) per month
in 2007 to PKR 4,600 (US$ 45.23) per month
in 2008 to PKR 6,000 (US$ 59.00) per month
in 2010 to PKR 7,000 (US$ 68.83) per month
in 2012 to PKR 8,000 (US$ 78.66) per month
in 2013 to PKR 10,000 (US$ 98.32) per month

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in 2014 to PKR 12,000 (US$ 116.73) per month

MINIMUM WAGES IN PAKISTAN


14000
12000

10000

8000
WAGES
6000

4000

2000

0
1992

1996

1998

2006

2007

2008

2010

YEARS

RUPEES
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2012

2013

2014

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Salaries And Benefits
(Executives)
Managing Director
General Manager
Senior Manager
Manager
Deputy Manager
System Analyst
Programmer
Salaries And Benefits

250000
150000
100000
75000
75000
75000
50000

500000
300000
150000
125000
100000
100000
80000

40000
30000
30000

70000
50000
50000

20000
20000
15000
15000
15000
15000
10000
985000

30000
30000
30000
30000
20000
20000
15000
1700000

(Non-Executives)
Foreman
Supervisor
E Data processing
Supervisor
Boiler man
Electrician
Clerk/Typist
Data Entry Operator
Security Guard
Driver
Unskilled worker
Total

For any business you need Human Resource, its an essential part of
successful business. Therefore its a fixed cost of business which it
need to pay. By looking at the pay scale it is evident that if a business
starts with the above mentioned Human resource than its cost varies
from Rs. 9,85,000 17,00,000. Thus human resource affects the cost of
business.

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TRADING ACROSS THE BORDER


In todays globalized world, making trade between economies easier is
increasingly important for business. Excessive document requirements,
burdensome customs procedures, inefficient port operations and
inadequate infrastructure all lead to extra costs and delays for
exporters and importers, stifling trade potential. Research shows that
exporters in developing countries gain more from a 10% drop in their
trading costs than from a similar reduction in the tariffs applied to their
products in global markets.
Cost required to export and import (US$ per container)

All documentation
Inland transport and handling
Customs clearance and inspections
Port and terminal handling
Official costs only, no bribes

According to data collected by Doing Business, exporting a standard


container of goods requires 8 documents, takes 20.7 days and costs
$765.0. Importing the same container of goods requires 8 documents,
takes 18.4 days and costs $1005.0.
Globally, Pakistan stands at 108 in the ranking of 189 economies on
the ease of trading across borders The rankings for comparator
economies and the regional average ranking provide other useful
information for assessing how easy it is for a business in Pakistan to
export and import goods.
Standard 20' CONTAINER
INSIDE

INSIDE

INSIDE

DOOR

DOOR

LENGTH

WIDTH

HEIGHT

WIDTH

HEIGHT

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CAPACITY

TARE

MAXI

WEIGHT

CARGO

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19'4"

7'8"

5.900m

2.350

7'10"
2.393m

7'8"

7'6"

2.342

1,172CuFt

2.280m

33.2CBM

4,916lb

47,900l

s
bs
2,230Kg 21,770K

REFORMS:
Some of the reforms to provide ease in doing the business
2011
Pakistan

reduced

the

time

to

export

by

improving

electronic

communication between the Karachi Port authorities and the private


terminals, which have also boosted efficiency by introducing new
equipment.
2015
Pakistan made trading across borders easier by introducing a fully
automated, computerized system (the Web-Based One Customs
system) for the submission and processing of export and import
documents. This reform applies to both Lahore and Karachi.
COST:
Stages to export
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KARACHI
Time (days)
Cost (US$)

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Customs clearance and

200

inspections
Documents preparation
Inland transportation and

10
4

110
200

handling
Ports and terminal handling
Totals

3
20

150
660

Stages to Import
Customs clearance and

KARACHI
Time (days)
Cost (US$)
2
220

inspections
Documents preparation
Inland transportation and

10
2

155
200

handling
Ports and terminal handling
Totals

3
17

150
725

The cost associated to import and export add on to the cost of doing
business in Pakistan. All the incurred in documentation, custom
clearance, transportation and lack of facilities accumulates and
increase the cost of business.

INFLATION
Inflation is the increase in the general price level of goods and services
in an economy over a period of time. When the price level rises, each
unit of currency buys fewer goods and services. Consequently, inflation
reflects a reduction in the purchasing power per unit of money a loss
of real value in the medium of exchange and unit of account within the
economy.

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SOME CAUSES OF INFLATION:


Foreign Remittances Increase in foreign remittances is increasing
the money supply in our country.
Increase in money supply leads to inflation.
Foreign Aids Foreign aids are also a source of mobilization of
resources form rich countries to poor countries. It is also a cause of
inflation in Pakistan.
Non-productive Expenditures
Government of Pakistan has to make a lot of non-productive
expenditures like defense etc. Such Unproductive expenditures lead to
the wastage of economies precious resources and also lead to Inflation.
Corruption & Black Money
Corruption and black money leads to increase in aggregate demand,
which is cause of inflation.
These evils increase aggregate demand and import volume.
Slow Industrial Growth
Our industrial sector is not at developed form due to use of backward
techniques of production.
Less production also creates shortage in market and caused in
inflation.
Increase in Wages & Salaries
Now labor is demanding more wages and salaries. Increase in wages
and salaries leads to increase in cost that increases the prices. On the
other hand due to more wages and salaries there is an increase in
income and it caused in inflation.

Increase in Prices of Imports


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Increase in the prices of imports also leads to creation of inflation. If
there is an increase in the prices of oil and other imported raw material
then it will cause to reduction in supply.
Devaluation
The value of our currency is decreased due to devaluation. It makes
imported goods more expensive and it leads to shortage of supply.

RELATIONSHIP BETWEEN INFLATION RATE AND


EXCHANGE RATE
Expectations play the most important role in determining the value of
currency and inflation rate at a given interest rate. Increase in money
supply leads to the depreciation of currency in foreign exchange
market. The chain of causation runs like this: as money supply
increases, it generates inflation, which raises interest rates and hence
depreciates the currency in foreign exchange market. When the
domestic currency depreciates it increases the imported prices, such
as raw material, which leads to increase in the cost of production and
in turn increases the domestic prices and change the aggregate
demand and hence generate inflation.
Usually movements in exchange rate affect the monetary policy stance
and the central bank has to adjust monetary variables in the economy.
If Pakistans currency depreciates in the foreign market then it exerts
pressure on State Bank to decrease the money supply either via
interest rate effect or by applying quantitative controls. In Pakistan
exchange rates were fixed until 1990s. No clear-cut relationship exists
between the two variables. Foreign investors have seen their incomes
reduced as inflation has reduced the value of Pakistani rupee by over
38 per cent in last five year. Earlier they repatriated their income at the
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rate of Rs60 a dollar now they have to pay Rs99 for one dollar. Their
costs in Pakistan have increased due to local inflation, high power and
energy costs and higher labor wages while the profit margins have
declined despite increase in rates of their products. Domestic
manufacturers that get working capital at 12-15 per cent have to first
earn this much just to pay back to the banks and then earn another 3-4
per cent just to cover recurring expenses like wages, electricity and
gas bills etc. This is asking too much from them as the persistent
inflation besides higher interest
has increased their production cost. Thus increasing the cost of
business

How Inflation, exchange rates affects business?


High inflation rates increases the cost of business as this means that
same Rs.100 will buy less and less that implies, to start up and run a
successful business, they have invest lot of money than buy land,
machinery, raw materials, utility bills, salaries would be high so it will
cost a lot to business than if they would have started when the
inflation rate was low. It also leads to uncertainty, making planning of
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production difficult. Prices need to be raised and this angers the
consumers who blame producers for increasing prices.
Companies who need to buy significant raw materials will find their
Profits getting squeezed while the cost going up.
Moreover as inflation affects the exchange rates therefore companies
who deals in imports and exports find their cost of business rising.
Inflation results in the devaluation of money which mean that a
company will have to pay more to import the same stuff while
exporting if they charge more so their product become less attractive
in the global market.

INTEREST RATES:
The benchmark interest rate in Pakistan was last recorded at 8.50 percent. Interest Rate in
Pakistan averaged 12.48 percent from 1992 until 2015, reaching an all-time high of 20 percent in
October of 1996 and a record low of 7.50 percent in November of 2002. Interest Rate in Pakistan
is reported by the State Bank of Pakistan.

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Interest rates highly affects those business which are dependent on credit. The rise in interest
rates reflects that the cost of borrowing also increases. As now the business will have to pay
more therefore their cost increases while vice versa is also possible.

Average Exchange Rates for Pakistani


Rupee to US $

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YEAR

EXCHANGE RATE

1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014

21.71
23.80
25.08
28.11
30.57
31.64
36.08
41.11
45.05
49.50
53.65
61.93
59.72
57.75
58.26
59.51
60.27
60.74
70.41
81.71
85.19
86.34
93.40
101.5
101

EFFECT OF EXCHANGE RATES ON BUSINESS:


Pakistans imports are also highly concentrated in few items namely,
machinery,

petroleum

and

petroleum

products,

chemicals,

transport

equipment, edible oil, iron and steel, fertilizer and tea.


Pakistan being an agricultural based economy needs to import machinery,
pesticides etc and this is affected by the exchanges rates.
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Furthermore, any business which requires raw materials and other products
from different countries their cost of business will be affected. If rupee gets
depreciated, firms who buy raw material will see an increase in the cost of
buying raw materials and their revenues going down.

ELECTRICITY
Access to reliable and affordable electricity is vital for businesses. To
counter weak electricity supply, many firms in developing economies
have to rely on self-supply, often at a prohibitively high cost. Whether
electricity is reliably available or not, the first step for a customer is
always to gain access by obtaining a connection.
Pakistan had 60 MW of power generating capacity for 31.5 million
people in 1947, and this was extended to 119 MW by 1959, just as the
country was entering a period of development that required consistent
infrastructure. In 1952 the government acquired a majority
shareholding of the Karachi Electric Supply Company (KESC) and in
1958 formed the Water and Power Development Authority (WAPDA).
The purpose of the formation of WAPDA was to manage the growth of
schemes in water and power.
WAPDA expanded the electricity generation capacity to 636 MW.
WAPDA produced 3000 MV in 1970, 7,000MV in 1990, 19,550MV in
2005 and 22,263 MV in 2010. However, fast urbanization and
industrialization increases the demand of electricity day to day

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Although the country experienced over 100 per cent growth in terms of
installed capacity over the last two decades, it has not been smooth
sailing. Hardly any value-engineered projects were developed over this
period. Other than the 1450MW Ghazi Barotha project and a couple of
nuclear power plants, there is not much to be satisfied about.
Meanwhile, the list of blunders in terms of the dumping of essential
projects and the orchestration of unviable and counterproductive
projects is very long. The independent power producers (IPPs)
Programme of the 1990s, for example, could have been
quite beneficial but ultimately turned out to be counterproductive due
to issues such as the lack of transparency, excess-generation capacity,
high-tariff structures and unviable power-generation technologies.
Interestingly the World Bank, one of the key players in the IPPs
Programme, has also acknowledged the existence of issues such as the
lack of transparency, political influence in the award of contracts and
excess generation capacity. Therefore, although the IPPs brought one
of the few periods of electricity prosperity, they ended up with grave
economic implications for the Water and Power Development Authority
(Wapda) and the country. Some of the other crucial setbacks inflicted
on the energy sector during this period include the dumping of
Wapdas power development Programme in the 1980s, the binning of
the State Engineering Corporations plan to indigenize power plants in
the 1990s, barring Wapda from thermal power generation in the 1990s,
the persistent shelving of the Kalabagh dam project, the failure to
institute large new hydropower projects and growing reliance on
thermal power. This sequence of irrational and absurd decision-making,
either by incompetence or by design, gradually put the energy sector
in trouble. Ironically, even in the midst of a devastating energy crisis,
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the same mistakes are being repeated: evidence of this is the rental
power Program that is now actively being pursued. It is time national
interests were put before petty personal and political interests, for the
change needs to go beyond mere rhetoric.
Electricity is very important for any business. However, its availability
is not unlimited. Electricity crisis, as well as high cost of fuels disturbs
the proper supply of electricity. The industry currently faces the
problem of shortage of electricity and high interest rate. Due to the
shortage of electricity and high interest rate, the cost of production of
industry increases because the production of the textile industry is
decreases and fixed cost of the industry remains the same. The
factories operate less time due to electricity shortage and production is
also less. If the factories generate private electricity than the cost of
electricity is high. A huge amount of money is required for the purpose
of generating the electricity.
The electricity crisis and interest rate affected the production of
Pakistans industry very badly. The high cost of production resulting
from electricity crisis and high interest rate has been the primary
cause for negative growth of the industry. The above factors increase
the cost of production which decreases the exports.

Registering property
In Pakistan private companies are regulated and incorporated by
companies Ordinance 1984, while SEPC is the regulatory authority
established for companies ordinance, 1984. SECP is the Securities
and Exchange Commission of Pakistan, it is the financial
regulatory agency in Pakistan whose objective is to develop a modern
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and efficient corporate sector and a capital market based on sound
regulatory principles, in order to encourage investment and
foster economic growth and prosperity in Pakistan. This commission
issues incorporation certificates when all requirements are met by
promoters as per law.
There are some basic steps which need to be followed to get a
company registered, these are
1.
2.
3.
4.
5.

Naming the company


Get name availability certificate from SECP.
Decide authorized capital or share capital of your company.
Copies of CNICs of each subscriber.
Memorandum of association tells about the business.

Importance Of property registration:

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Registered property rights are necessary to support investment,
productivity and growth. Cadasters or surveys, together with land
registries, are tools used around the world to map, prove and secure
property and use rights. These institutions are part of the land
information system of an economy. With land and buildings accounting
for between half and three-quarters of the wealth in most economies,
having an up-to-date land information system clearly matters.
Evidence from economies around the world suggests that property
owners with registered titles are more likely to invest. They also have a
better chance of getting credit when using their property as collateral.
In Argentina a study observed greater investment in homes after
formal titles were granted to squatters. Compared with the squatters
who did not receive title, title holders increased the overall value of
their homes by 37%. In Nicaragua, having a formal title not only made
owners more likely to invest but increased land values by 30%.
Following a land titling project in Thailand, property increased in value
by 75197% after being registered.
The benefits of land registration go beyond the private sector. For
governments, having reliable, up-to-date information in cadastres and
land registries is essential to correctly assess and collect tax revenue.
In Thailand, where annual revenue from property and transfer taxes
rose from $200 million in the 1980s to $1.2 billion by 1995, a land
titling program that increased the number of registered property
owners during the 1980s is perceived to be one of the reasons for the
increase.

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Pakistans ranking in registering property:


Pakistans ranks 141 in getting property registered as compared to
Indias 121 And Bangladeshs 188 as of ease of doing business 2015,
while in 2014 it had 111th position and registering property in Pakistan
requires 6.0 procedures, takes 50.0 days and costs 7.6% of the
property value.
Registering property has a significant impact on cost of doing
business in any country, particularly in Pakistans case as we see its
easier to see get property registered in comparison to India and
Bangladesh that means it way easier to start a business in Pakistan
and Its only because the days required to get property registered and
get going with a new venture is easier here
Although the reforms by government have never been enough for the
entrepreneurs as we see In 2008, Pakistan made registering property
more expensive by increasing the capital value tax, which in turn had
negative impact on small businesses

TAXES
Taxes in Pakistan play a very vital role for formulating the cost incurred
while doing any business, the journey from starting a business towards
its end contains different transactions, situations where at each and
every step tax is deducted from each and every purchase, or from
salaries or in any investments.
Pakistan's Current Taxation system is defined by Income Tax Ordinance
2001, promulgated on 13 September 2001, which became effective
from 1 July 2002.

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Taxation in Pakistan is a complex system of more than 70
unique taxes administered by at least 37 agencies of the Government
of Pakistan
Taxes in Pakistan have a large spectrum which include taxes at
muncipal level upto Federal Level. Legislation and Law exists to
regulate all type of taxation. A broad description regarding the nature
of administration of these taxes is explained below:
Direct Taxes
Direct taxes primarily comprise income tax, alongwith supplementary
role of wealth tax. For the purpose of the charge of tax and the
computation of total income, all income is classified under the
following heads:
Salaries
Interest on securities;
Income from property;
Income from business or professions
Capital gains; and
Income from other sources.
Here is a brief bar chart of the sales tax rate in Pakistan during the
past 10 years.

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Personal Tax
All individuals, unregistered firms, associations of persons, etc., are
liable to tax, at the rates ranging from 10 to 35 per cent.
Tax on Companies
All public companies (other than banking companies) incorporated in
Pakistan are assessed for tax at corporate rate of 35%. However, the
effective rate is likely to differ on account of allowances and
exemptions related to industry, location, exports, etc.
Good economic governance in areas such as taxation, regulations, and
business licensing is a fundamental pillar for the creation of a favorable
business environment

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In the latest edition of the Doing Business report, Pakistan is currently


ranked 172 which is 4 ranks below than its previous rank in 2014 which
was 168 which implies that the situation in paying taxes by the people
has gotten much more worse in the past year.
While comparing Pakistan to its competitive countries like China or
India, Pakistan is not that far behind these countries in terms of paying
taxes as China ranks 120th in the list while India ranks 156th.

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INDUSTRY ANALYSIS
Cement Industry
Since the industry faces a situation where sales price will be fixed by
mutual consensus, the cost of production will be the most critical factor
of profitability. Due to increased cost of input such as electricity, coal,
paper bags, mark-up rates etc, the cost of production of cement has
increased over the years.
Energy cost is a major component of total cost of production. It
contributes at an average 40 to 45 percent towards total cost of
cement production. Energy cost is even higher in case of those plant
which use wet process. A cement plant based on wet process
consumes 165 kg of furnace oil to produce one ton of clinker as
compared to 85 kg of furnace oil used in dry process to produce the
same quantity of clinker. Since cement plants use both furnace oil and
electricity, any increase in the prices of these two products is
detrimental to profitability of the industry. Ever since October 1995,
however, there has been more than 60% increase in the price of
furnace oil.
Another significant cost component is packaging material. Cement is
rarely sold in bulk in Pakistan almost all cement sales are in four-ply
paper sacks. Cost of paper sacks has gone up by almost 90% since
December 1994. The packaging cost has also increased due to new
taxes being imposed on import of sack kraft paper.

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Power tariff for industrial consumers has been increased by almost 46
percent to Rs 15.31 from Rs 10.51 per unit whereas Time-of-Day rate
was increased by 35 percent to Rs 18.81 from Rs 13.99 per unit. The
off-peak rate of this category jumped up by 62 percent to Rs 13.31
from Rs 8.22. This has also substantially raised the cost of production
of cement. The packaging cost has also increased due to new taxes
being imposed on import of sack kraft paper.

There is urgent need for installing bulk loading facilities at ports in


order to facilitate the cement industry to export in large quantity.
Presently, only one company has arranged a limited bulk handling
facility.

Cement prices have gone down considerably despite substantial


increase in prices of major inputs like coal, electricity, paper bags and
markup rates. Consequently, current price of cement has become
much lower than its historical prices due to two factors viz. fierce
competition and government pressure to keep the prices low.

A price level of Rs.260 per bag seems to be a viable price for cement
industry, although it is still lower than the cement prices in other
countries. Undue pressure of government to keep the prices lower
than the prices of other countries would prove to be counterproductive
for the economy.

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About 100 percent increase in the prices of imported coal, from around
US$ 40 per ton, few years back, to US$ 80 per ton, has greatly affected
profitability of cement industry. Also, about 30 percent fuel cost
affected cost of production.

Taxes on Cement in Pakistan are the highest than most of the countries
i.e. about 30 percent, as compared to 10 percent in Indonesia,
Philippines, Egypt, 7 percent in Thailand and zero percent in Iran and
Malaysia. As such, rationalization of taxes on cement in Pakistan
should be considered.

Government should consider switchover to concrete roads, as


maintenance cost of such roads is almost zero, although initial capital
cost is higher. As per an Indian study, there would be about 12 per cent
saving in fuel consumption on plying vehicles on concrete roads.
Substantial savings can be achieved by this switchover.
Excise Duty on cement may be reduced by at least half, to bring the
taxes on cement at least to the level of India, if not to the level of other
countries.

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Textile Industry
The Pakistan textile industry contributes more than 60 percent (US $
9.6 billion) to the countrys total exports. However, currently this
industry is facing great decline in its growth rate. The major reasons for
this decline can be the global recession, internal security concerns, the
high cost of production due to increase in the energy costs etc.
Depreciation of Pakistani rupee that significantly raised the cost of
imported inputs, rise in inflation rate, and high cost of financing has
also effected seriously the growth in the textile industry.

Finance Bill to Burden Industry Further


All Pakistan Textile Mills Association (APTMA) has told that
governments actions are not matching with its words for the textile
industry. Referring to the Prime Minister Yusuf Raza Gilani speech at the
launching ceremony of the Infrastructure Development of the Pakistan
Textile City at Port Qasim Industrial Area, where Prime Minister spoke
high of the textile industry contribution towards the countrys
economy, Chairman APTMA Tariq Mehmood said the federal budget
2009-10 is a total negation of the acknowledgement of the role of
textile industry on the part of the Prime Minister. According to him,
reintroduction of minimum tax on domestic sales would invite
unavoidable liquidity problem, which is already reached to the
alarming level. He said the textile industry was facing negative
generation of funds due to unaffordable markup rate on the one hand

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and acute shortage of energy supply & unimaginable power tariff for
industry.

Increasing Cost of Production


The cost of production of textile rises due to many reasons like
increasing interest rate, double digit inflation & decreasing value of
Pakistani rupee. The above all reason increased the cost of production
of textile industry which create problem for a textile industry to
compete in international market.
1. Internal issues pose a Larger Threat for Pakistans Textile
Industry
Pakistans textile industry is going through one of the toughest period
in decades. The global recession which has hit the global textile really
hard is not the only cause for concern. The high cost of production
resulting from an instant rise in the energy costs has been the primary
cause of concern for the industry. Depreciation of Pakistani rupee
during last year raised the cost of imported inputs. In addition, double
digit inflation and high cost of financing has seriously affected the
growth in the textile industry. Pakistan's textile exports have gone
down during last three years as exporters cannot effectively market
their products since buyers are not visiting Pakistan due to adverse
travel advisory and it is getting more and more difficult for the
exporters to travel abroad.

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Textile exporters rightfully demand reduction of Kibor rate to 8% to
avoid a severe decline in exports. This rate is inflation adjusted rate
and then banks by adding 2 or 3% in KIBOR rate charge their
customers for their profit. A three-year comprehensive textile policy is
expected to be announced before budget 2009-10.
2. Energy Crisis
Electricity Crisis
As a consequence of load-shedding the textile production capacity of
various sub-sectors has been reduced by up to 30 per cent. The joint
meeting of APTMA & other related organization was held at APTMA
House to formulate a joint strategy to address the alarming electricity
crisis being faced by the textile industry. The meeting unanimously
decided to constitute a joint working group of electricity management
for the textile industry in the larger interests of the value chain of the
textile industry. The joint working group will meet shortly to design a
detailed plan to pursue the following goals; immediate total exemption
from Electricity load shedding for the textile industry value chain;
Rationalization and reduction of electricity tariff. The load-shedding of
electricity cause a rapid decrease in production which also reduced the
export order. The cost of production has also risen due to instant
increase in electricity tariff. Due to load shedding some mill owner uses
alternative source of energy like generator which increase their cost of
production further. Due to such dramatic situation the capability of
competitiveness of this industry in international market effected badly.
Fig. 1. Illustrates comparison between electricity production and
consumption.

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Figure 1: Comparison between Electricity Production and
Consumption

Gas Shortage
Gas load-shedding continues in Punjab and NWFP despite a significant
increase in temperature. A spokesman for the All Pakistan Textile Mills
Association (APTMA) claimed that 60 to 70 per cent of the industry had
been affected and was unable to accept export orders coming in from
around the globe. He said the textile industry had already endured
over 45 days of gas disconnection over a period of four months,
causing extraordinary production losses and badly affecting capability
of the industry. In Punjab, energy supply disruption only was causing an
estimated loss of Rs1 billion per day.

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3. Tight Monetary Policy


The continuity of tight monetary policy cause an intensive increase in
cost of production. Due to high interest rate financing cost increases
which cause a severe effect on production. The withholding tax of 1%
also effect the production badly. The high cost of doing business is
because of intensive increase in the rate of interest which has
increased the problems of the industry. The government should take
immediate measures to remove slowdown in the textile sector.

4. Removal of subsidy on Textile sector


The provisions of Finance Bill 2009-10 are not textile industry friendly
at all. Provisions like reintroduction of 0.5% minimum tax on domestic
sales, 1% withholding tax on import of textile and articles etc., are
nothing but last struck on industrys back. Reintroduction of minimum
tax on domestic sales would invite unavoidable liquidity problem,
which is already reached to the alarming level. The textile industry was
facing negative generation of funds due to unaffordable markup rate.
5. Lack of new investment
Pakistan textile industry is facing problem of Low productivity due to its
obsolete textile machineries. To overcome this problem and to stand in
competition, Pakistan Textile Industry will require high investments.
There is a continuous trend of investing in spinning since many years.
Pakistans textile industry estimates that around Rs1, 400 billion

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(US$32 billion) of investment was required till 2010 in order to achieve
the government's export target.
6. United States & EU cuts imports of textile from Pakistan
United States cancel more than 50% of textile orders of Pakistan .US
also impose a high duties on the import of textile of Pakistan which
effect the export in a bad manner. US & EU are the major importer of
Pakistan textile which create a huge difference in export of Pakistan
textile after imposing a restriction on import of Pakistani textile goods.
7. Raw material Prices
Prices of cotton & other raw material used in textile industry fluctuate
rapidly in Pakistan. The rapid increase in the price raw material effect
the cost of production badly. The increase in raw material prices
fluctuate rapidly due to double digit inflation & instable internal
condition of Pakistan. Due to increase in the cost of production the
demand for export & home as well decreased which result in terms of
downsizing of a firm.
8. The Effect of Global Recession on Textile Industry
Pakistan is 26th largest economy in the world, and 47th largest in
terms of the dollar. It is sad to see our economy like this now. Pakistan
is actually a very economically diverse country with boasting industries
of textiles, agriculture, etc.
The main reason for this slump has largely been the political instability
over the past few years; no proper economic policies were
implemented; at least none that succeeded. This caused a very high
rate of inflation, which, in 2008, had increased to a whopping 25% as

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compared to a 7.9% of 2006. What occurred afterwards is what we call
the domino effect. The value of the Rupee crashed from 60-1 USD to
80-1 USD in only a month, the prices of commodities soared through
the roof, the number of people living below poverty line increased from
60 million to 77 million, and consequently, the working class layman
became virtually deprived from basic necessities like water, wheat,
electricity, natural gas, and cooking oil; add to all this, the
preposterous amounts of load-shedding, and what we get is a nation in
shambles.
The above all situation of the economy badly affected the textile
industry also. The demand for textile product cut down locally &
internationally as well. The export order reduced due to unpredictable
conditions of Pakistan & political instability. The cut down in the
production of textile cause further unemployment level which decrease
the living standard of peoples.
9. Effect of Inflation
Inflation rate is measured as the change in consumer price index (CPI).
Inflation is basically a general rise in the price level. It is decline in the
real value of money. Inflation can have adverse effect on economy.
Pakistan is one of prey of inflation. It still faces high double digit
inflation. The increase in inflation cause the increase in the cost of
production of textile good which return in downsizing. The double digit
inflation cause reduction in exports of textile.

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CONCLUSION
Pakistans textile industry is going through one of the toughest periods
in decades. The global recession which has hit the global textile really
hard is not the only cause for concern. Serious internal issues also
effected Pakistans textile industry very badly. The high cost of
production resulting from an instant rise in the energy costs has been
the primary cause of concern for the industry. Depreciation of Pakistani
rupee during last year which has significantly raised the cost of
imported inputs. Furthermore, double digit inflation and high cost of
financing has seriously affected the growth in the textile industry.
Pakistan's textile exports in turn have gone down during last three
years as exporters cannot effectively market their produce since
buyers are not visiting Pakistan due to adverse travel conditions and it
is getting more and more difficult for the exporters to travel abroad.
Pakistans textile industry is lacking in research & development (R &
D).The production capability is very low due to obsolete machinery &
technology.
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Pakistan is facing high cost of production due to several factors like the
hike in electricity tariff, the increase in interest rate, energy crisis,
devaluation of Pakistani rupee, increasing cost of inputs, political
instability, removal of subsidy & internal dispute. The above all factor
increase the cost of production which decreases the exports. Exports
receipts decrease from $ 10.2 B to $ 9.6 B. The global recession also
hit badly the textile industry. Double digit inflation also caused
decrease in production in textile sector which cause the increase in
unemployment level.
On imposition of 16% FED on banking and insurance services such
advance taxes would play havoc with the growth of the industry in
already existing adverse circumstances and needed to be withdrawn
immediately. The government should not withdraw sales tax and
withholding tax exemption on machinery and parts, as it would add
cost besides liquidity problem for the industry.

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COMPARISON WITH COUNTRIES

INDIA
To begin with here is just a brief overview of the rankings between India and
Pakistan for the different factors/drivers of the cost of doing business.

INDIA

PAKISTAN

Now well look into these factors simultaneously and have an idea of how
much cost is needed or required to do this in each country.
India currently ranks much lower in terms of starting a business than in
Pakistan which clearly shows us that setting up a business in Pakistan is
much more feasible for any random person. The question is why is it feasible
to do it in Pakistan?
While setting up a standardized company in India, it requires nearly 100,000
INR in paid in minimum capital requirement along with a startup capital of 10
times GNI per capita. On the other hand setting up the same kind of a
business in Pakistan requires 0 PKR in paid in minimum capital requirement
along with a start- up capital of 10 times GNI per capita which shows us how
it is much more beneficial for a person to start a business in Pakistan rather
than India and therefore India is ranked lower in this case.
Pakistan is ranked higher in terms of dealing with construction permits than
in India because of the estimated cost associated with constructing a
building in Pakistan currently is PKR 6,601,001 while in India the same cost
would be around INR 4,496,273 which when converted into Pakistan ruppes
would cost around PKR 7425795.40. In terms of registering a property in both
countries, same costs are applied.

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IN TERMS OF INFLATION RATE:


INDIA

PAKISTAN

It can be seen here that in terms of inflation rate, India has been able to
obtain a much more sustainable position because of its huge population
which results in less inflation. On the other hand, in Pakistan we can have a
fair idea from the above graph that there has been a rise as well as a decline
over the years which affects the cost of doing business in the country and is
one of the most vital factors.

IN TERMS OF INTEREST RATES:

The graph above provides us with a clear picture of how both the countries
over the years have been in terms of interest rates. We can see here that the
interest rate in both the countries over the years have had ups and downs
but recently Pakistan has a relative lower interest rate when compared with
India.

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IN TERMS OF TAXES:
Its clearly
obvious from
the figure to
the right that
in terms of
taxes India
would be more
preferred while
doing a
business
because of its
los sales tax
rate which means that there could be more profit and higher revenues.
Furthermore, here is another picture which shows us the Tax Revues
generated in Pakistan and India comparatively.
Tax Revenue is basically the amount the government receives from its
citizens because of the tax rates.

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IN TERMS OF TRADING (IMPORTS, EXPORTS):


COST TO EXPORT

COST TO IMPORT

1111111111111

Trading is usually required in each business today and the importance of


trading has recently reached to its peak with the introduction of many new
platforms from where it could happen. The two graphs given above shows us
the cost of imports and exports in India and Pakistan in terms of US Dollars.
Both the graphs are in favor of setting up a business in Pakistan because the
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cost is much lower in Pakistan when compared with India. India lags behind
both in the cost to import and in cost to export.

BANGLADESH
Here is just a brief overview of the rankings of Pakistan and Bangladesh in
terms of doing business in their respective countries
BANGLADES

PAKISTAN

Pakistan and Bangladesh are not much parted from each other in terms of
setting up a new business with there being only 1 place in difference. To
make things easier for tis citizens, the government in Bangladesh has
launched various reforms like launching a full-fledged online business name
clearance and registration process, eliminating the requirement to buy
adhesive stamps and further enhancing the online registration system and
automating the registration process and reducing the time required to obtain
a trading license and to complete the tax and value added tax registration.
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While Pakistan only launched a single reform in the year 2010 which has
already been mentioned in the report earlier.

IN TERMS OF INFLATION RATE:

It can be seen in the graphs posted above that the inflation rate in Pakistan
is relatively a bit higher than in Bangladesh which tells us that the cost of
doing any business in Pakistan would be slightly higher than doing the same
business in Bangladesh.

IN TERMS OF INTEREST RATE:

The graph above provides us with a clear picture of how both the countries over the
years have been in terms of interest rates. We can see here that the interest rate in
both the countries over the years have had ups and downs but recently Pakistan
has a relative lower interest rate when compared with Bangladesh.

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IN TERMS OF TAXES:
In the Pie charts shown in the start of the comparison, we can see that Bangladesh
ranks much higher than Pakistan in terms of paying taxes which shows that the
people living there do not consider taxes a major threat for their business therefore
are eligible enough to pay the taxes.

We can see that in this graph given above as well that sales tax rate in
Bangladesh for quite some time now has been stable since the year 2006
which shows that the cost of doing any business is not much affected by the
taxes. Bangladesh would be preferred while doing business over Pakistan in
terms of taxes because of generating higher revenues and greater profits.

IN TERMS OF TRADING (IMPORTS, EXPORTS):


The pie-chart shown in the start shows us that Pakistan is ranked higher in terms of
trading. This can be seen in the graphs given below:
COST TO EXPORT

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It can clearly be seen in the graphs given above as well that Pakistan is by
far much more better than Bangladesh in terms of importing or exporting
goods with any country. The graphs given above shows the cost to import
and export in terms of US Dollars.

EXCHANGE RATES:

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The picture above shows the exchange rates of the currencies of each
currency with US Dollars. We can see it in the graph that in terms of
exchange rates Pakistan has the highest, with Bangladesh and India being
just slightly less than Pakistan.

BIBLIOGRAPHY
Abbasi, N. (2014). Inflation dilemma. Lahore: LCCI.
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Bank, T. W. (2015). Doing Business 2015. Washington: The International
Bank for Reconstruction and Development /.
dilemma, I. (2010). Labor and Employment Law: A Profile On Pakistan.
Lahore.
http://www.doingbusiness.org/data/exploreeconomies/pakistan
http://www.tradingeconomics.com/pakistan/cost-of-business-start-upprocedures-percent-of-gni-per-capita-wb-data.html
http://www.globalsecurity.org/military/world/pakistan/industry.htm
http://lahoreschoolofeconomics.blogspot.com/2013/05/overviewpakistan-moving-economy-forward.html
http://inflationdata.com/articles/2013/01/31/costs-of-inflation/
http://www.pepco.gov.pk/psr.php

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