Myths regarding Pakistan,

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There were some posts regarding surge in foreign investments by Pakistanis, decrease in foreign remittance etc. Some believe Pakistan has weak economics. Others argue, Pakistanis do not pay taxes. The following two analysis by my colleague is worth reading. Will help us all understand Pakistan economies, taxes and benefits of investing in Pakistan market!

Myth - Pakistan is a poor country
Reality – Is opposite!

GDP is defined as "Good and services produced by a person multiplied by the total population". GDP is used to define how big the economy of a country is. Pakistan official GDP is 225 Billion dollars, which makes it the 44th largest economy of the world out of 196 total countries. Since purchasing power of 1 US$ varies from country to country, and in order to get a more realistic picture, sometimes GDP in terms of purchasing power parity (PPP) is used to see how much goods and services people can afford after adjusting for their cost. So in terms of PPP, Pakistan GDP comes to US$500 billion (according to UN) and makes it the 26th largest economy of the world.
However this GDP calculation is based on official figures i.e goods and services produced by individuals documented by the state bank and FBR. In reality, most services and goods being produced are not documented or understated to cheat on taxes. For e.g a retail store owner never reveals correctly his profit at the end of the year to FBR. As a matter of fact it is under reported by almost a factor of 10. Similarly no body is accounting for the services produced by overly busy tailors, plumbers, AC mechanics, car mechanics, cooks, maids, Khokha owners and hundreds of other people. Almost all the rural economy is undocumented specially where small farmers and cattle raisers are concerned.
If we make a very conservative estimate that the actual economy is twice as large as the documented economy, in terms of GDP based on Purchasing power parity, our GDP goes up to 1000 billion dollars. This makes Pakistan real economy the 17 largest in the world, just behind Turkey 1100 billion dollars. Interestingly enough this makes Pakistan economy larger than that of Australia, New Zealand, Saudi Arabia, Austria, Switzerland, UAE, Denmark, Finland, Malaysia and a host of other "large" and successful economies.
I have to make it clear that I am not talking about per capita income, which is GNP divided by population, but the total size of the economy. When a new business is to be set up, size does matter, as it gives an idea of how much revenue and profit can be generated. So despite all the hype of Pakistan economy being in dire straits, it still is one of the biggest in the world and the most resilient. That also explains that despite complaints of inflation and "Mehngai", the restaurants serving Rs 1000 per head food are full, so are show rooms selling Rs 2-5 million cars, weddings where 500 guests are invited, Boutiques selling Rs 10,000 per dress good for only one season, and women complaining that they cant find a good tailor or a cook or a maid.
Pakistan is the only country where despite global economic crises no bank got bankrupted, where the government has never defaulted on a single domestic or foreign loan, where National savings is as safe as U.S treasury bonds and where no telecom operator has ever suffered a loss or gone under. It is the only country where Toyota can put 20 year old engines in its latest cars and still there is a delivery waiting period and where Suzuki can sell 30 year old Mehrans and still be the number one automaker of the country. It is the only country where commercial flights are always full, where all universities generate profits, where property dealers become millionairs. It is also a country where a house in Islamabad costs more than a house in California. Yet we think we live in a poor country!!!!

Myth – Pakistanis don not pay taxes
Reality – Pakistan is one of the most heavily tax countries

This years budget estimates revenues of 3000 billion from direct and mostly indirect taxes. If we divide 3000 billion by 9 crore adult Pakistanis, then each Pakistani will pay Rs 35,000 tax (mostly indirect) this year. Now average income of a Pakistani is Rs 7000 per month according to Government figures. That means that each Pakistani making Rs 7000 per month has to pay Rs 3000 in tax each month. This is almost 50% tax. This also makes Pakistan the most heavily taxed country in the world, and the sad part is that burden is mostly on poor and middle class Pakistanis. This year tax has been increased on Ghee, cooking oil, chicken, milk, butter, yogurt and pulses. A person making Rs 1 Lak per month and spending his salary in that month pays Rs 40,000 in indirect taxes and Rs 14000 in direct taxes. That makes it Rs 54,000 in taxes each month...