Pakistan’s economy is facing a quiet crisis, and the strangling grip of bureaucracy and heavy taxation might be at the heart of it. With over 100 regulatory bodies at the federal level alone, countless overlapping rules, repeated paperwork, and high taxes, the business environment is far from friendly. Investors both local and foreign are finding it harder than ever to start or grow businesses.
According to the Legatum Prosperity Index 2023, Pakistan ranks 136 out of 167 countries, with particularly low scores in investment environment and enterprise conditions. Simply put, this means that starting and running a business here is riddled with obstacles. Our industrial productivity is low, exports are limited, and our manufacturing base largely focuses on low-value goods.
One telling indicator is Pakistan’s investment to GDP ratio, which stood at 12.9% in 2024. Compare that with India, Bangladesh, and Vietnam, which hover around 30%, and the gap becomes glaring. Foreign direct investment (FDI) is also low Pakistan managed only about 0.7% of GDP, while Vietnam attracted 4.3%, Bangladesh 0.9%, and India about 0.7%. Low investment slows industrial growth, limits job creation, and keeps productivity stagnant.
A big part of the problem lies in our regulatory environment. With more than 100 federal regulators and many more at the provincial level, businesses face overlapping rules and repeated requests for the same information. The Competition Commission of Pakistan has documented at least 12 layers of general regulations, plus 50 laws for the manufacturing sector, enforced by over 40 agencies. Although the Asaan Karobar Act 2025 aims to simplify this, progress is still gradual.
Taxes are another major hurdle. Pakistan’s corporate tax rate is 29%, but when combined with super taxes and other direct levies, businesses effectively pay around 50% far higher than regional neighbors who charge between 20-25%. The system is also highly complex. A company may need to file 18 different returns per year, and for firms operating across provinces, that number can soar to 60 or more. This excessive paperwork consumes time, inflates costs, and discourages investment.
Even simple business operations, like repatriating profits or opening letters of credit, face delays due to procedural restrictions and manual approvals. Foreign professionals often wait months for security clearances. Such outdated systems create uncertainty, making Pakistan a less attractive destination for investment.
Experts say the solution is straightforward: simplify regulations, rationalize taxes, reduce the government footprint, and make the economy predictable. Countries like India, Bangladesh, and Vietnam have shown that targeted reforms can attract investment, boost exports, and create jobs.
As Dr. Arthur Laffer put it during the 2021 Pakistan Prosperity Forum: “The government should get out of the way, cut spending, rationalize taxes, deregulate the economy, reduce trade barriers, privatize state owned enterprises, and establish sound money. The government should then be in the business of undoing things, not doing things.”
Pakistan has a real opportunity to escape its boom and bust cycles. With smart reforms in regulation and taxation, the economy can become a fertile ground for investment, innovation, and growth. The question remains: is the government ready to unclog the red tape and let businesses breathe?
