Islamabad, Mar 14: Pakistan’s General Sales Tax (GST) is a major factor contributing to rising poverty levels in the country, while targeted cash transfer programmes are helping reduce income inequality, according to a recent World Bank study.
The report, titled “The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan”, found that the GST places a disproportionate burden on low-income households, increasing financial pressure on the country’s poorest families.
According to the study, GST accounts for more than 7 per cent of households’ pre-tax spending on average, making it the single most significant fiscal policy factor contributing to higher poverty rates.
The analysis noted that Pakistan’s tax structure relies heavily on indirect taxes, which tend to affect poorer households more severely than wealthier groups.
The report also identified public spending on education—particularly at the pre-primary and primary levels—as the second-largest contributor to inequality within the country’s fiscal framework.
In contrast, the Benazir Income Support Programme (BISP), a government-run cash transfer initiative that provides financial assistance to low-income households, was found to be the most effective policy tool in reducing inequality.
Among all fiscal measures assessed in the study, the programme showed the strongest impact in improving income distribution and supporting vulnerable households.
The World Bank report urged Pakistan to strengthen domestic revenue collection and improve the efficiency of public spending.
It recommended creating additional fiscal space through tax reforms and better expenditure management, while directing more resources towards expanding social protection programmes and improving the quality and accessibility of essential public services.
The study also highlighted a significant imbalance in the country’s fiscal system, noting that the poorest households effectively contribute more in taxes than they receive in government benefits.
Researchers said shifting the focus towards progressive direct taxation, which targets higher-income groups, could help make the tax system more equitable and reduce poverty over time.
