Farooq Awan

The Institute of Cost and Management Accountants of Pakistan (ICMA) has identified heavy taxation, foreign exchange restrictions, high operational costs and policy instability as major pressures influencing multinational companies (MNCs) operating in Pakistan, contributing to decisions to scale down or restructure their activities.

According to ICMA’s research report available with Wealth Pakistan, multinationals in sectors such as FMCG, automotive, chemicals and pharmaceuticals face rising cost burdens due to expensive imported raw materials, high electricity tariffs, fuel prices and increasing labour expenses. These cost pressures have squeezed profit margins and reduced the financial viability of maintaining large-scale manufacturing or direct operations.

The report states that Pakistan’s tax structure remains one of the most significant challenges for foreign investors. In some sectors, combined corporate taxes, sales taxes, and surcharges exceed 50 percent, directly affecting reinvestment decisions and encouraging companies to reconsider or downsize their local presence. ICMA notes that the high fiscal burden is particularly problematic for consumer goods and manufacturing firms.

Foreign exchange and profit repatriation constraints have also been highlighted as major concerns. The report shows that profit repatriation fell sharply from USD1.7 billion in FY2021 to USD273 million in FY2023 due to restrictions and delays in foreign exchange approvals. Although repatriation improved to USD2.215 billion in FY2024 and USD2.1 billion in 11MFY25, ICMA notes that past constraints discouraged new capital commitments and complicated long-term planning for multinational firms.

The study further outlines regulatory unpredictability as a persistent obstacle. Sudden tariff changes, retroactive taxation and price controls create an uncertain environment for long-term investment. Comparisons made by the report indicate that some regional markets such as Vietnam and Bangladesh offer more stable regulatory frameworks, which influence multinationals’ investment decisions.

Operational inefficiencies are also documented. The report states that high electricity prices, inconsistent energy supply, outdated logistics networks and delays in customs and transport affect production and export competitiveness. Export-oriented firms face additional challenges due to congestion at ports and limited connectivity within the domestic transport network.

ICMA notes that workforce constraints contribute to rising operational challenges. The migration of skilled professionals seeking better opportunities abroad, combined with limited availability of digital and technical talent, increases hiring and training costs for multinational employers.

Market dynamics have also shifted, as consumers are becoming more price-sensitive and increasingly opting for low-cost local brands. This trend adds further pressure on multinational producers operating with higher cost structures.

Despite these challenges, ICMA emphasises that Pakistan continues to hold potential for foreign investors, particularly in sectors with strong domestic demand. However, the report underscores that addressing high operational costs, stabilising policy frameworks and improving administrative processes will be essential to retaining existing multinational firms and attracting new investment.

Credit: INP-WealthPk