World Bank: Sales Tax Fuels Inequality & Poverty
- Pakistan's General Sales Tax (GST) significantly contributes to increased poverty, according to a recent World Bank study.
- The World Bank's analysis, titled "The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan," indicates that the GST has the most considerable negative effect on...
- The study emphasizes that the GST, while not inherently regressive, is allocated in proportion to consumption, meaning it doesn't strongly favor or disfavor any particular income group.
discover how Pakistan’s General Sales Tax (GST) is worsening poverty, according to a new World Bank study. The report unveils that GST payments, accounting for over 7% of household expenditure, disproportionately impact vulnerable populations. The Benazir Income Support programme (BISP) emerges as a key driver in reducing inequality. This analysis highlights the negative effects of the GST and underscores the need for fiscal reforms. Prioritize social expenditure and targeted transfers to combat poverty, the World Bank recommends. News Directory 3 is on top of the story. Explore the crucial link between tax policies, poverty, and inequality in Pakistan. Discover what’s next …
World bank: Pakistan’s GST Exacerbates Poverty
Updated May 25, 2025
Pakistan’s General Sales Tax (GST) significantly contributes to increased poverty, according to a recent World Bank study. The report highlights that GST payments account for over 7% of pre-tax household expenditure, disproportionately impacting poor and vulnerable populations.
The World Bank’s analysis, titled “The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan,” indicates that the GST has the most considerable negative effect on the poverty headcount.Conversely,the Benazir Income Support Programme (BISP) demonstrates the most notable positive impact on reducing inequality.
The study emphasizes that the GST, while not inherently regressive, is allocated in proportion to consumption, meaning it doesn’t strongly favor or disfavor any particular income group. However, its impact on vulnerable households is considerable. The BISP cash transfer program, conversely, shows the largest marginal contribution to inequality reduction, followed by pre-primary and primary education expenditures.
Vulnerable households get smaller benefits than taxes paid
The World Bank suggests that Pakistan should prioritize improving domestic revenue mobilization and public expenditure efficiency to create greater fiscal space. This additional space should be used to expand social expenditure, implement targeted transfers, and enhance fiscal equity.
Fiscal sustainability can align with fiscal equity if additional revenues from GST harmonization are used to compensate poor and vulnerable households through well-targeted cash transfers. Reforms to improve the accessibility and quality of public health and education services could also have long-term positive effects on poverty and inequality reduction in Pakistan.
The report notes that Pakistan’s fiscal policy has historically emphasized revenue collection through indirect taxes, which often impoverish, and regressive subsidy expenditures. This approach de-prioritizes progressive direct taxation,which could shield vulnerable households,as well as direct,targeted transfers and investments in social infrastructure.
The study also reveals that wealthier households capture a larger share of subsidies and in-kind benefits while also paying a significant portion of total revenues from both direct and indirect taxes. in fiscal year 2019, the richest 20% of households received 34% of total subsidy expenditure, 29% of in-kind education benefits, and 27% of in-kind health benefits, while paying 40% of total revenues from indirect taxes.
Most poor and vulnerable households are net payers into the fiscal system, receiving fewer benefits than the taxes they pay. only the poorest 10% of the population can expect to be net recipients, with a net cash gain estimated at 1.2% of pre-fiscal income. All other income groups experience net cash losses, ranging from -1.8% in the second decile to -5.5% in the richest decile.
What’s next
Moving forward, Pakistan needs to focus on fiscal reforms that balance revenue collection with targeted social programs to alleviate poverty and reduce inequality.Prioritizing direct transfers and investments in social infrastructure is crucial for long-term economic growth and stability.