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Problems of starting a business in Pakistan
Problems of starting a business in Pakistan
In terms of the international standards, the criteria for doing business in any country are determined by the ease and the cost of doing business. Countries, where it’s easy to conduct your business with no extra problem, have seen a large increase in FDIs and more international companies are eager to open operations there or get into joint ventures with the local countries. In terms of cost of doing business in Pakistan, the country ranks at a staggering low of 174th out of 189 countries based on the Doing Business Report 2017 by the World Bank. The Pakistani people and their government may disagree with this rating because they would prefer to show a more positive image of their country to attract new businesses and more FDIs.
However, there are several problems in starting a business in Pakistan. These problems exist in the forms of delay in communications, centralized decision makings, lack of loyalty, lazy labor force, as well as the free rider problems. All these contribute to the high costs of doing business in this country.
Lack of communications– The first and foremost requirement of running a successful business is proper communication. In terms of starting a business, one would expect that local companies would communicate and reply to queries and confusions with investors so that the business can smoothly. Most Pakistani businesses do not even have a proper procedure to respond to such queries. In fact, their communication system is one of the poorest in the whole world. They do not reply back to emails and do not even let their foreign counterparts know of certain changes in decisions. If emails are sent to the Pakistani business representatives then they need to be followed up with phone calls to ensure that they actually open up their emails and respond. Thus it delays the whole decision-making process thereby raising the cost of starting a business.
Centralized decision making– One of the most difficult things about conducting your business in Pakistan is their whole centralized decision-making culture that exists in every business. If you are thinking about getting into joint ventures or working alongside Pakistani companies then you will be frustrated at how much of a control freak the Pakistani bosses are. They do not want to give up control nor do they want to delegate their decision-making powers to middle-level managers. As a result, every decision has to be made by going to the top authority which can be very time consuming and can hamper your daily operations.
Complex Corporate Law– If you decide to start your own business in Pakistan and run it the way you want it to, even then you are going to face certain roadblocks. There is the Companies Ordinance 1984 which basically regulates the private limited companies in Pakistan. It is filled with a set of complex laws all of which require the lengthy amount of paper works and other documents. All companies have to file their financial accounts, name all their directors, and mention every single detail of their Annual General Meetings and submit it to the Securities and Exchange Commission of Pakistan (SECP). All these end up being a big hassle for new entrepreneurs and most of the time, foreign businessmen look for other countries to invest in.
Tax Burdens– Unless you are considering starting your business in Pakistan as a sole proprietorship or a partnership business, you won’t be getting any sort o tax benefits in this country. Sole proprietors and partnership businesses do not have to pay any sort of income tax only if they have taxable incomes below Rs. 400000. Once you cross that limit you are eligible for taxation. However, if you are planning on starting a private limited company or other forms of the limited company in Pakistan then you have to pay taxes no matter how much profit you make. You are eligible for taxation even if the profit is of Rs. 1. For companies, you will be required by law to file all your financial statements including your balance sheets, income statement, and statement of cash flow to the Federal Board of Revenue. While you are going to be making these financial statements anyway for your company, filling them and sending them to the FDR is an added burden that you wouldn’t want to carry.
Inefficient labor force– While manpower isn’t an issue in Pakistan, it is the effectiveness of the said manpower that becomes a problem while doing business in Pakistan. The labor force in Pakistan isn’t very educated nor are they very sincere. They have no sense of loyalty to their employers or the company they represent. And most of the times they will waste time and not full fill their daily routine properly. This leads to an immense amount of time loss which can add up to raising the cost of doing business in Pakistan.