Cost of doing business in Pakistan 34% higher than region, private study shows

Operating a business in Pakistan costs about 34 percent more than in neighboring South Asian countries, a gap that is discouraging entrepreneurship and contributing to a steady shift toward salaried employment, according to recent private sector research. According to a report by Nikkei Asia.

The findings were compiled by the Pakistan Business Forum using industrial data available up to December 2025. PBF chief organizer Ahmed Jawad said the higher cost structure reflects a combination of elevated energy prices, expensive financing and a heavy tax burden.

Jawad said fuel prices include a petroleum development levy of around Rs80 per litre, while interest rates are close to 12.5 percent, compared with a regional range of 6 to 7 percent. Electricity tariffs average about Rs34 per unit, roughly double the regional benchmark of Rs17.

He added that the sharp depreciation of the rupee has further increased costs, with the currency weakening from Rs110.7 per dollar in January 2018 to around Rs280 per dollar by December 2025, significantly raising the cost of imported inputs. The effective tax burden on businesses, he said, can reach up to 55 percent, well above levels in comparable economies.

Analysts say policy constraints have compounded the problem. Bilal Gilani, executive director of Gallup Pakistan, said trade and industrial policies have often restricted imports of cheaper foreign inputs, forcing firms to rely on more expensive domestic alternatives and raising production costs.

Gilani also pointed to Pakistan’s risk profile, citing security, money laundering and geopolitical concerns that result in additional licensing, certification and due diligence requirements. These measures, he said, increase fixed operating costs, particularly for exporters and technology firms.

The cost pressures appear to be taking a toll on exports, especially textiles. Jawad said hundreds of medium sized textile units have shut down in recent years, as exports have struggled to sustain growth since 2021. He warned that a trade agreement between the European Union and India could further weaken Pakistan’s textile competitiveness.

Textiles account for about 60 percent of Pakistan’s exports in fiscal year 2024. In December, the Pakistan Business Forum wrote to Prime Minister Shehbaz Sharif calling for regionally competitive electricity tariffs and lower corporate tax rates to ease the cost burden on businesses.

Labor market data suggests the environment is reshaping employment choices. A recent Gallup Pakistan household survey shows salaried workers now make up 60.1 percent of the workforce, up from 53.4 percent in fiscal 2010–11, while self employment has declined to 21.8 percent from 24.4 percent.

Individual experiences echo the trend. Ali, an Islamabad based business graduate who asked not to be fully identified, said he abandoned plans to open a restaurant after repeated interactions with government departments and instead sought paid employment.

Economist Niaz Murtaza said high operating costs, bureaucratic hurdles, limited access to finance and ongoing political and economic uncertainty continue to constrain small businesses, reinforcing the move away from entrepreneurship.

Gilani added that Pakistan’s education system has historically focused on producing salaried workers rather than entrepreneurs, with limited emphasis on risk taking and opportunity recognition.