Pakistan Corruption Report

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).

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).

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).

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).

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).

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.