Pakistan risk report
Corruption is a significant obstacle to business in Pakistan, and companies should expect to regularly encounter bribery or other corrupt practices. Corruption is rampant in all sectors and institutions. The Pakistani Penal Code applies to individuals and makes it illegal to offer, pay or accept a bribe. Companies can be held civilly liable under the Prevention of Corruption Act and the National Accountability Ordinance. Facilitation payments and gifts are prohibited but are common practice. Prime Minister Nawaz Sharif was disqualified from office in 2017 following a probe into undeclared offshore assets following the Panama Paper leaks. Sharif was indicted over charges of failing to follow disclosure rules for his offshore assets. Pakistan is unable to guarantee integrity in state bodies and is unable to prevent corruption despite a sound legal framework. The government didn't implement anti-corruption laws effectively and officials engaged in corruption with impunity.
Judicial system Very high risk
There is a high risk of corruption in Pakistan's judiciary. Bribes and irregular payments in return for favorable judgments are common (GCR 2015-2016). Two in five Pakistanis believe the judiciary is corrupt (GCB 2015). Over two-thirds of Pakistanis who indicated they had interacted with the courts in the past year, reported paying a bribe (GCB 2015). Companies have insufficient trust in the independence of the judiciary and report low trust in the efficiency of the legal framework when it comes to settling disputes and challenging regulations (GCR 2017-2018). Pakistan's judiciary is characterized by corruption, delays, and inefficiency (BTI 2016). Delays are often caused by antiquated rules, unfilled judgeships, poor case management, and weak legal education (HRR 2016). The lower level of the judiciary suffers from nepotism, influence from wealthy persons and influential religious and political figures, and corruption (BTI 2016; HRR 2016). Under former Chief Justice of the Supreme Court Iftikahr Chaudhary, whose term ended in 2013, the judiciary overreached, leading to increasing inefficiency and a very high workload leading to delays (BTI 2016). Due to the weakness of the judiciary, many foreign investors include provisions for international arbitration in their contracts to avoid ending up in protracted disputes in local courts (ICS 2017).
On average, enforcing a contract takes 1096 days, similar to the regional average (DB 2018). The Pakistan Arbitration Act provides a mechanism for arbitrating commercial disputes and was further strengthened by the accession of Pakistan to the International Center for the Settlement of Investment Disputes (ICSID). Pakistan is also a member state to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
Police Very high risk
There is a very high risk of corruption when dealing with Pakistan's police. Police services do not reliably protect companies from crime and businesses attribute significant costs to the consequences of crime and violence (GCR 2017-2018). Three out of four Pakistanis believe most or all of the police is corrupt, and three out of four Pakistanis who have come into contact with the police in the past year report paying a bribe (GCB 2015). Pakistan's police force suffers from a lack of equipment, poor training, and chronic corruption (TI 2014). Failure to punish abuses has contributed to widespread impunity (HRR 2016). Police and prison officials frequently extort money from prisoners and their families (HRR 2016). Police effectiveness varies by district (HRR 2016).
Public services Very high risk
There is a high risk of corruption in Pakistan's public services sector. Inefficient government bureaucracy together with high-levels of corruption present significant barriers to business in Pakistan (GCR 2017-2018). Irregular payments and bribes are commonly exchanged when obtaining public services and licenses (GCR 2015-2016). More than half of Pakistanis believe local government officials are corrupt (GCB 2015). Corruption is widespread in Pakistan's administration; there is evidence that the devolution of certain authorities from the federal to the provincial level has led to an increase in corruption (ICS 2017). Major causes of corruption are cited as the lack of accountability and enforcement of penalties, as well as the lack of a merit-based promotion system coupled with low wages (ICS 2017). Corruption at the lower levels of government is common, to the point where Pakistanis often consider it to be normal (ICS 2017). The Securities and Exchange Commission is another key regulatory authority for the corporate sector and capital market, as well as insurance companies, non-banking finance companies, and private pensions.
It takes twelve steps to start a business in Pakistan, several more than the regional average (DB 2018). Obtaining a construction permit takes fifteen steps, which is in line with the regional average, but the time required in Pakistan significantly exceeds averages in neighboring countries (DB 2018).
Land administration Very high risk
Companies are likely to encounter corrupt practices when dealing with the Pakistani land administration. Businesses report insufficient trust in the protection of property rights in Pakistan (GCR 2017-2018). While Pakistan's legal system supports the enforcement of property rights in principle, the weak judiciary, as well as the lack of clarity concerning land titles, are a significant challenge for investors (ICS 2017; BTI 2016). The governments of the provinces of Punjab, Sindh, and Khyber Pakhtunkhwa have recently improved land titling in their jurisdictions by digitizing land records (ICS 2017). There are no special restrictions on foreigners owning or leasing land, except for restrictions on the agricultural sector (ICS 2017). Direct foreign investment is protected from expropriation under the Protection of Economic Reforms Act and the Foreign Private Investment Promotion and Protection Act (ICS 2017).
Accusations of corruption have emerged involving the construction of a large-scale housing project by the Defense Housing Authority (DHA), an arm of the Pakistani military that constructs housing for its members as well as the general public (The Nation, Jul. 2017). Thousands of victims bought plots of lands in 2010, which were never developed (The Nation, Jul. 2017); the money, amounting to over USD 140 million, is said to have been embezzled by the offenders, which include the brother of a former Army Chief (The News, Jul. 2017). Pakistan's National Accountability Bureau has confiscated over 160 acres of land from the accused (The News, Jul. 2017).
Registering property requires eight steps, which exceeds the regional average, while the time required to register property in Pakistan is almost double that of the regional average (DB 2018).
Tax administration Very high risk
The Pakistani tax administration is highly susceptible to bribery and other corrupt practices. Companies indicate that bribes and irregular payments in the process of making tax payments are very common (GCR 2015-2016). Companies also complain of demands for advance tax payments (ICS 2017). About two-thirds of Pakistanis consider tax officials to be corrupt (GCB 2015). Tax rates and regulations also represent a problem to business (GCR 2017-2018). Inconsistent taxation policies are a concern for foreign investors; federal and provincial tax regulations prove difficult to navigate (ICS 2017). Tax evasion among parliamentarians is suspected to be rampant; since the tax agency started publishing the tax returns of parliamentarians in 2013, tax contributions among the group have risen by 200 percent (The Statesman, Jul. 2017).
Companies make 47 tax payments each year, which is much higher than the regional average of 28.5 payments (DB 2018).
Customs administration Very high risk
There is a high risk of corruption in Pakistan's customs administration. Businesses indicate that irregular payments and bribes are common (GETR 2016). Companies rate the efficiency of the clearance process as poor and the time predictability of import procedures is also insufficient (GETR 2016). Burdensome import procedures, tariffs, and corruption at the border are cited by businesses as the biggest impediments for importing (GETR 2016). Adequate measures to investigate reports of corruption in the customs administration are lacking (USAID 2014). Corruption, misdeclarations, undetected revenue leakage, and lack of technical support are considered obstacles to the customs agency (USAID 2014).
The costs for businesses to comply with Pakistan's import requirements are significantly higher than the regional average, and the time required is also higher than elsewhere in the region (DB 2018).
Public procurement Very high risk
There is a high risk of corruption in Pakistan's public procurement sector. Diversion of public funds and favoritism in the decisions of public officials are common (GCR 2017-2018). Bribes and irregular payments in the process of government contract award procedures are very common (GCR 2015-2016); nine out of ten firms report being expected to give gifts to secure a government contract (ES 2013). The main causes of procurement corruption in Pakistan can be characterized as ineffective and inadequate procurement rules and a lack of institutional capacity and honest leadership to implement public procurement rules (Shabbir, 2014). Corruption risks in defense procurement are very high, in part due to the fact that procurement regulations do not need to be followed when using the 'national interest' exemption (GDACI 2015).
Corruption inside national railway operator Pakistan Railways (PR) is widespread; a 2016 report found that misappropriations totaled nearly USD 95 million dollars (NDTV, Aug. 2016). Part of the problem is that PR does not always follow the official Public Procurement Rules (NDTV, Aug. 2016). Companies are recommended to implement special due diligence procedures to counter the likelihood of encountering corruption in Pakistan's procurement process.
The Prevention of Corruption Act and the National Accountability Ordinance (NAO) serve as principal corruption laws in Pakistan. Most importantly, the NAO contains a passage stating that unexplained assets are seen as corruption and the responsibility to present proof that the assets were legitimately obtained rests with the accused. Acts of corruption and attempted corruption in the form of extortion, active and passive bribery, embezzlement, bribing a foreign official, abuse of office, and money laundering are illegal. Notably, the mere promise of a bribe is not an offense under Pakistani law. The NAO criminalizes both public and private sector corruption and sets the maximum penalty for corruption at 14 years rigorous imprisonment (implying hard labor) with a fine and confiscation of assets acquired through corruption in the name of the accused or the accused's dependents/beneficiaries (UNODC 2017). Companies can also be held civilly liable under the Prevention of Corruption Act and the National Accountability Ordinance. The Pakistan Penal Code penalizes public servants accepting gratifications as well as bribery or fraudulent behavior in relation to property or elections. Pakistan's Government Servants (Conduct) Rules offers regulations on gifts and hospitality offered to civil servants, abuse of office and disclosure of assets and property. Money laundering is criminalized by the Anti-Money Laundering Ordinance, with penalties of up to ten years of rigorous imprisonment, fines, and the recovery and confiscation of illegitimate assets and property. Public procurement is regulated by the Competition Act, which prohibits anti-competitive practices such as collusion, abuse of market dominance, deceptive marketing and harmful mergers and acquisitions.
The National Accountability Bureau (NAB) is the main anti-corruption institution addressing corruption, yet it is constrained by scarce funding and a shortage of staff (ICS 2017). Pakistan's National Assembly passed the Public Interest Disclosure Bill in August 2017, the bill provides whistleblowing protections for public officials (Daily Times, Aug. 2017). Those who disclose information likely to 'prejudice' Pakistan's sovereignty and integrity are not afforded protection (Daily Times, Aug. 2017). Pakistan has not signed the OECD Anti-Bribery Convention but is a signatory of the Asian Development Bank/OECD Anti-Corruption Initiative and of the United Nations Convention Against Corruption (UNCAC).
Freedom of expression is protected by the Constitution but can be subject to restrictions in practice (HRR 2016). While criticism of the government is generally allowed, criticism of the military can result in political or commercial reprisal (HRR 2016). Journalists reporting on sensitive issues, including civil-military tensions, have faced threats, harassment, and violence (HRR 2016). Violence against journalists remains a problem and perpetrators enjoy impunity (FitW 2017). Strict anti-blasphemy laws penalize blasphemy on religious matters with fines, imprisonment or death sentences (HRR 2016). The government is believed to monitor journalists online; encouraging self-censorship and deterring contact between journalists and their sources (FotP 2017). The Freedom of Information Ordinance guarantees any citizen access to public records but is criticized for having too many exceptions, but in practice, there is no access to information on government spending, public procurement, and party finances (ICS 2017). Pakistan's internet freedom and press freedom are classified as 'not free' (FotN 2017, FotP 2017).
Freedoms of assembly and association are granted but are subject to arbitrary restrictions (HRR 2016). International NGOs face a lot of restrictions in their movements and ability to operate in the country (HRR 2016). Pakistan has a vibrant civil society, but they are often ignored by political institutions (BTI 2016). Civil society organizations (CSOs) do face harassment from the state apparatus (BTI 2016). In December 2017, Pakistan ordered 29 international NGOs to leave the country (FT, Dec. 2017). The government has used the Exit Control List, which lists individuals banned from exiting the country, as a tool to harass civil society activists who have worked on issues that are embarrassing to officials (FitW 2017).
- World Bank: Doing Business 2018.
- World Economic Forum: Global Competitiveness Report 2017-2018.
- US Department of State: Investment Climate Statement 2017.
- Freedom House: Freedom in the World 2017.
- Freedom House: Freedom of the Press 2017.
- UNODC: UNCAC Implementation Review Pakistan 2017.
- Freedom House: Freedom on the Net - Pakistan 2017.
- FT: "Pakistan Orders Expulsion of 29 International NGOs", 14 December 2017.
- DailyTimes: "Protecting Whistleblowers", 22 August 2017.
- The Statesman: "Pakistan Lawmakers Rushing to Pay Higher Taxes after Panamagate", 28 July 2017.
- The Nation: "DHA City Scam Victims Call for Justice", 14 July 2017.
- The News: "DHA City Scam: NAB Confiscates 1,300 Kanal Land", 12 July 2017.
- Freedom House: Freedom of the Press 2016.
- Bertelsmann Foundation: Transformation Index 2016.
- World Economic Forum: Global Enabling Trade Report 2016.
- US Department of State: Human Rights Report 2016.
- NDTV: "Audit Report Unearths Corruption Worth Rs. 10 Billion In Pakistan Railways", 14 August 2016.
- World Economic Forum: Global Competitiveness Report 2015-2016.
- Transparency International: Global Corruption Barometer 2015.
- Transparency International: Government Defence Anti-Corruption Index 2015.
- Deutsche Welle: "Why Pakistan wants to rein in its civil society" 1 July 2015.
- Al Jazeera: "Pakistan adopts army courts in 'terror' cases", 6 June 2015.
- Reuters: "Pakistan budget targets more tax payers to bring down deficit", 5 June 2015.
- Transparency International: "National Integrity Systems - Country Report", Pakistan 2014.
- USAID: Customs Compliance Risk Management: Gap Analysis and Roadmap for Implementation in Pakistan - 2014.
- Shabbir, A. "Corruption in Infrastructure Procurement - A Study Based on Infrastructure Procurement of Infrastructure Projects in Pakistan", 2014.
- World Bank Group: Enterprise Survey - Pakistan 2013.