A recent World Bank study has found that Pakistan’s General Sales Tax (GST) is a major contributor to rising poverty levels, while targeted cash transfer schemes such as the Benazir Income Support Programme (BISP) are helping reduce inequality.Titled “The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan,” the report reveals that GST consumes more than 7 per cent of households’ pre-tax spending, disproportionately burdening low-income families and deepening financial stress. Citing the study, a report in Dawn, quoted by news agency PTI, on Sunday noted that GST is the single most significant fiscal policy factor driving up national poverty rates.Education spending- particularly at the pre-primary and primary levels- was identified as the second-largest contributor to inequality, according to the report.
In contrast, the BISP emerged as the most effective tool in narrowing inequality. The programme, which provides monthly financial support to the poorest households, has shown the most meaningful impact among all assessed fiscal interventions.The World Bank study calls for Pakistan to enhance domestic revenue collection and improve expenditure efficiency. It urges the government to create additional fiscal space through reforms and to channel those resources into expanding social protection and improving the quality and reach of essential public services.Crucially, the report criticises Pakistan’s current taxation system for its dependence on indirect taxes, which are seen as more impoverishing, and on regressive subsidies. It highlights the lack of emphasis on progressive direct taxation, which would better target higher-income groups.The analysis also points to a stark imbalance in the fiscal system: the poorest households are effectively net contributors, paying more in taxes than they receive in benefits.
