A recent study undertaken by the World Bank has marked the biggest red flags that contribute to poverty and inequality in Pakistan, while also highlighting factors that have had a positive impact on a nation that has been reeling under stagnant economic growth and high inflation besides political chaos.
The study, titled, ‘The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan’, reports that the General Sales Tax (GST) has been the largest marginal contributor to the rise of poverty in the country. On the other hand, a monthly cash transfer programme to the poorest families has had the largest positive impact on inequality reduction in Pakistan.
GST payments, the report says, account for over 7 per cent households’ pre-tax expenditure, which leads to further impoverishment among poor and vulnerable households.
Pakistan’s daily paper Dawn reported on Sunday that the World Bank (WB) study had estimated that the marginal contributions of individual fiscal instruments — or the additional impact that individual fiscal instruments have on poverty or inequality when all other fiscal instruments are included — demonstrate that GST has the largest marginal contribution to the national poverty increase.
According to a World Bank estimate for the fiscal year 2023-24, almost 40 per cent of Pakistan’s population lives below the poverty line.
The second-largest impact on inequality comes from pre-primary and primary education expenditures, the WB study further said about the country with the world’s highest number of out-of-school children.
It also reported that the Benazir Income Support Programme (BISP), which provides cash to the poorest families on a monthly basis, has the largest positive impact on inequality reduction. The BISP cash transfer demonstrates the largest marginal contribution to inequality reduction, the study added.
The study suggests that, moving forward, Pakistan should improve its domestic revenue mobilisation and public expenditure efficiency to generate greater fiscal space. The additional fiscal space should be prioritised to expand social expenditure and targeted transfers and to improve fiscal equity.
The report recommends expenditure reforms to improve the accessibility and quality of public health and education services in Pakistan, which could have long-term impacts in terms of poverty and inequality reduction.
It also finds faults with the taxation system of the country, which it claimed emphasises revenue collection from “more frequently impoverishing indirect taxes as well as regressive and inefficient subsidy expenditures” while de-prioritising progressive direct taxation.
The report further says that the most poor and vulnerable households are net payers into the fiscal system, meaning that benefits received are smaller in magnitude than taxes paid.
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