Islamabad: A World Bank study says that the General Sales Tax (GST) has the greatest marginal contribution to increased national poverty, while GST payments represent more than 7 percent of expenses before homes of households, which leads to greater impoverishment among poor and vulnerable homes.
The effects of taxes and transfers on inequality and poverty in Pakistan say that the GST has the greatest negative impact on poverty staff; Benazir’s entry support program has the greatest positive impact on reducing inequality.
Estimates of 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, show that GST has the greatest marginal contribution to the increase in national poverty.
GST is assigned approximately in proportion to consumption spending and, therefore, is not strongly regressive or strongly progressive. Meanwhile, BISP cash transfer demonstrates the greatest marginal contribution to inequality reduction. The second greatest impact on inequality comes from pre-prime and primary education expenses, he says.
Vulnerable homes obtain smaller benefits than paid taxes
The study suggests that, while progressing, Pakistan should improve its mobilization of domestic income and the efficiency of public spending to generate greater fiscal space. The additional fiscal space must be prioritized to expand social spending and directed transfers and improve fiscal equity.
Fiscal sustainability could be together with fiscal equity if the additional income collected from GST’s harmonization is used to compensate for poor and vulnerable homes through well -directed cash transfers. Expenditure reforms to improve accessibility and quality of health and public education services in Pakistan could have long -term impacts in terms of poverty and inequality reduction, says the study.
The report says that the fiscal policy in Pakistan emphasized the collection of indirect taxes income that it promotes more frequently, as well as the regressive and inefficient subsidy expenses to provide benefits while decreases the progressive direct taxes that can protect the poor and vulnerable homes of households of the households of the poorest households, the direct media, the transfers directed to the poor houses. Vulnerable, and investments in social households in households for social households in homes of social media households, household households. Productively in social, civic and economic life.
According to the report, the richest households capture a most of the subsidy and the benefits in kind available and pay more total income collected from direct and indirect taxes. In Pakistan in fiscal year 2019, the two richest deciles capture 34pc of total subsidy expenses, 29pc of educational benefits in kind and 27pc of health benefits in kind, and pay 40pc of total income of indirect taxes.
Most poor and vulnerable homes are net payers in the fiscal system, which means that the benefits received are lower than taxes paid. Only people with the poorest ten percent of the population can expect to be net receivers, or they can expect to receive more benefits than they will pay in taxes, with an estimated cash gain of 1.2pc of prefiscal income. All other individuals can expect to be net payers in terms of cash, with cash losses ranging from -1.8 percent in the decile of 2 to -5.5pc in decil 10 (the richest decile).
In the last two decades, Pakistan has fought with low and volatile economic growth.
Posted in Dawn, on May 25, 2025
