Pakistan’s Endemic Corruption: A Dark Reality in Finance and Business
Amidst the bustling business landscape of South Asia, Pakistan faces a significant challenge with corruption. Companies operating in the country should brace themselves for regular encounters with bribery and corrupt practices, as these problems permeate all sectors and institutions. despite a sound legal framework, the government’s inability to enforce anti-corruption laws effectively exacerbates the issue.
Sectors with High Risk of Corruption
Judiciary: A Corruption-Ridden Institution
According to various reports, the judiciary in Pakistan faces a high risk of corruption. Bribes and irregular payments for favorable judgments are commonplace. Over two-thirds of Pakistanis report that most or all of the judiciary is corrupt. These issues hinder foreign investor confidence and trust in the independence and efficiency of the legal framework. (Unicef, 2014)
Police: Perpetuating Impunity
Pakistan’s police force has a high risk of corruption, with three out of every four Pakistanis reporting having paid bribes to police officers. this creates a significant cost for businesses in terms of protecting themselves from crime and its consequences. Despite reform efforts, the police service continues to suffer from a lack of equipment, inadequate training, and chronic corruption, allowing impunity to prevail.
Public Services: Barriers to Business
Corruption in Pakistan’s public services sector is a significant barrier to doing business. Inefficient government bureaucracy, coupled with high levels of corruption, causes significant obstacles in obtaining public services and licenses. Bribes and irregular payments are commonly exchanged to expedite processes.
Real Estate and Land Administration: A Maze of Corruption
Dealing with the Pakistani land administration poses significant risks of encountering corrupt practices. Businesses lack trust in the protection of property rights, and the weak judiciary, along with unclear land titles, make investments challenging. Instances of corruption within the Defense Housing Authority, an arm of the military, have surfaced, embezzling over USD 140 million from unsuspecting buyers.
Taxation: A Complex Corrupt Network
Pakistan’s tax administration faces widespread corruption. Companies must make 47 tax payments each year, considerably more than the regional average, and bribes and irregular payments to tax officials are prevalent. Inconsistent taxation policies also add to the challenges for businesses navigating the complex regulatory environment.
Customs Administration: Major Obstruction
The customs administration in Pakistan is a significant hindrance to importing goods. Companies complain of burdensome import procedures, tariffs, and corruption at the border, making trade more complicated and costly than it should be. Adequate measures to investigate corruption within the customs administration are lacking, and misdeclarations, undetected revenue leakage, and a lack of technical support remain key challenges.
Public Procurement: A System Plagued by Corruption
Corruption in Pakistan’s public procurement sector is rampant. Diversion of public funds and favoritism in the decisions of public officials are common occurrences. Bribes and irregular payments for government contract award procedures are widespread. An estimated 90% of firms reported being expected to give gifts to secure a government contract. (World Bank, 2014)
Consequences of Corruption
Transparency International’s Bribery Perception Index ranks Pakistan 117 out of 180 countries in 2017. Despite the country’s anti-corruption laws, including the Prevention of Corruption Act and the National Accountability Ordinance, rampant corruption persists, hindering business efficiency and growth. As foreign investors continue to face these challenges, it is crucial for them to adapt by implementing special due diligence procedures and strengthening their risk management strategies to navigate the intricacies of Pakistan’s business environment.