World Bank Flags Pakistan’s GST As Major Poverty Driver, Raises Concerns About Existing Tax Norms

Titled “The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan,” the study identified GST as a key burden on low-income households.

According to the findings, GST payments constituted more than 7 per cent of pre-tax spending by households, worsening the economic situation for already vulnerable families.

Source : PTI

A recent World Bank report has found that Pakistan’s General Sales Tax (GST) is the fiscal measure with the highest marginal contribution to poverty in the country, while a key cash transfer programme offers the most significant relief in addressing inequality.

Titled “The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan,” the study identified GST as a key burden on low-income households, reported PTI.

According to the findings, GST payments constituted more than 7 per cent of pre-tax spending by households, worsening the economic situation for already vulnerable families. Dawn reported on Sunday that the World Bank’s analysis of various fiscal tools — specifically their individual impact when other instruments are accounted for — underscored GST as the leading factor in the rise of poverty nationwide.

In contrast, pre-primary and primary education expenditures were found to have the second-most significant impact on inequality, suggesting that the way public education is funded and delivered also plays a key role in deepening socio-economic divides.

Cash Transfers Show Promising Results in Reducing Inequality

While indirect taxation continues to affect poor communities negatively, the Benazir Income Support Programme (BISP) emerged as a bright spot. The report highlighted BISP’s monthly cash transfers to the country’s poorest households as the fiscal intervention with the most substantial positive impact on reducing inequality. “The BISP cash transfer demonstrates the largest marginal contribution to inequality reduction,” the study stated.

Looking ahead, the World Bank recommended that Pakistan focus on strengthening domestic revenue collection and increasing efficiency in public spending. The report emphasised the need to create additional fiscal space, which should be used to expand targeted social programmes and improve fiscal equity.

Call for Tax System Reform and Service Accessibility

The study also raised concerns about Pakistan’s existing tax framework, criticising its reliance on indirect taxes, which are often regressive and deepen financial strain on the poor. It pointed out that “more frequently impoverishing indirect taxes as well as regressive and inefficient subsidy expenditures” have been prioritised over direct progressive taxation.

In a revealing conclusion, the World Bank noted that the most disadvantaged households ended up contributing more to the fiscal system than they receive in return. “The most poor and vulnerable households are net payers into the fiscal system, meaning that benefits received are smaller in magnitude than taxes paid,” the report said.

To tackle these issues long-term, the report called for structural reforms in public health and education spending to ensure these essential services are both accessible and of higher quality. Such reforms, it argued, could prove crucial in making a sustained impact on poverty and inequality reduction.