Discusses pricing formula and other fees, value-added tax (VAT), etc.
Product pricing is often difficult for new entrants to the Pakistan market, principally due to the country’s complex tax structure. Foreign companies represented by a local agent, distributor, licensee, or other intermediary generally work closely with their local affiliates in determining prices.
Relatively high shelf prices frequently include a substantial tax component, which can add nearly 40-45 percent to the retailer’s purchase price. High prices and taxes for imported consumer items have created a large market for goods coming into Pakistan through “informal channels. Expatriate Pakistanis and professional couriers bring in large quantities of goods from the Middle East Gulf region in their personal baggage. Goods are also frequently smuggled from Dubai via sea, misrepresented as destined for the Afghan market to avoid import tariffs, or undervalued on bills of lading to evade taxes. In some segments of the market, goods brought through these channels have market shares ranging from 50 to 95 percent.
As an illustration of the scale and complexity of various taxes and duties imposed on imported consumer items, marketers of products build into their final sales price the following factors: landing charges (approximately 1.0 percent of initial price); customs duty; sales tax; bank charges; insurance, provincial revenue tax (if applicable), and the general sales tax.
Pricing of non-consumer items is based on different parameters. Most foreign companies in this market segment are also represented by agent/distributors and give their local affiliates significant latitude in pricing decisions. Agents often opt for higher sales turnover by reducing their margins, allowing them to generate more revenue through a higher volume of sales. In other cases, local agent/distributors may add up to 30 percent to the list price as their commission, depending on the nature of the product. For duty and tariff purposes, they quote the principal’s list prices only. On average, retailers markup imported machinery and equipment by 10 to 15 percent and imported general merchandise 20 to 30 percent.