Inequality in Pakistan may lead to more poverty and people with low levels of initial wealth may suffer from a relatively low nutritional status, which then impairs their educational opportunities and health status, resulting in an inequality trap of low status and low wages. There are significant inequalities across income groups in health outcomes and in access to nutrition, hygiene, safe drinking water and basic health services.
According to the LUMS-Oxfam research on inequality in Pakistan, Sindh is the most unequal province in Pakistan. In other words, the divide between rich and poor in Sindh has widened with time followed by Punjab, while Khyber Pakhtunkhwa (KP) and Baluchistan provinces have the lower levels of inequality.
The disparity between least and most developed districts measured by asset index ranges from 7.61 for Lahore to -6.23 for Rajanpur. A low asset score is more common than a high asset score. Of 35 districts, nearly 69 percent fall below the average, suggesting that households in these districts generally suffer from low levels of well-being.
In the past four decades, much attention in Pakistan has been focused on the task of alleviating poverty. However, policy makers seem to have turned away from directly dealing with the country‘s multiple inequalities, which go far beyond numbers and encompass people‘s perceptions and experiences. This section of the report argues that the standard income and consumption inequality measures cannot be reconciled with general perceptions of inequality in the country. It also presents some non-income inequality measures to highlight the nature and dimensions of inequality at both the household and the regional levels. In addition, it highlights the role of tax evasion and inflation tax1on inequality in the country.
The 60 percent of Federal Board of Revenue (FBR) income comes from indirect taxes; this shows regressive nature of taxation. Pakistan has low tax to GDP ratio, in past two decades it remained below 10% of GDP. Pakistan can get additional tax revenue of Rs. 80-115 billion if the exemptions on agriculture are withdrawn and taxes are imposed at the rates specified in the 2012-13 Finance Bill Additional revenue can be mobilized from services sector, which contributes over 50 percent to GDP but only 30 percent to taxation. Inflation is an offensive tax on consumption, because of its impact on poverty and inequality. Rising prices due to inflation can be viewed as a tax, which affects the poor.
Twenty percent increase in food inflation increases the poverty headcount by 7percent. A low tax base implies that there is little room for investments in nutrition, public education and health. Lack of tax revenues puts pressure on the budget and can lead, ultimately, to inflationary monetary policies – which have an important impact on the distribution of real income.
Powerful sectors gain advantage through tax exemptions. Since 2001, the Government of Pakistan (GoP) has recorded these exemptions under the category of tax expenditures, and the sums have risen dramatically. Nearly Rs. 500 billion were lost in year 2013-14 due to exemptions. In 1996–2002, politically connected companies received 45 percent larger loans than other companies. These firms had a 50 percent higher default rate on loans as well. The defaulted loans were inefficiently invested, leading to a further loss of an estimated 1.6 percent of GDP per year, which makes a total of Rs.67 billion.
There has been a growing difference between the earnings of the rich and poor over the time period 1990–2011. In 1994–95, the top 20 percent earned double than bottom 20 percent, but in 2010–11, they earned almost three times as much.
Educational gap between rich and poor people in Pakistan increased significantly in the 16-year period between 1995 and 2011. Poor and rich father in 1995 were statistically very similar in terms of mean years of education while now rich fathers have three times more years of education than poor fathers and rich sons have twice as many as poor sons. Children from poorer families are less likely to go to school than children from richer families- primary adjusted net attendance rate [ANAR] of the poorest wealth quintile is 50.8 percent, compared with 82.3 percent for the richest wealth quintile.
The number of out-of-school children in Pakistan is the second highest in the world, and they account for a significant share of the global out-of-school population. The biggest sector absorbing the female labour force is agriculture, but 80 percent of these women are unpaid family workers. Women rate of participation, at about 20 percent, is the lowest among SAARC countries Women own less than 3% of the country land and they may not have actual control over it despite their large contribution in agriculture.
A policy of ‘geographical targeting’ is required in which development funds are allocated to least developed areas on the basis of poverty mapping of districts. Consumption taxes need to be made less regressive by having different levels of taxes on different goods. Food items, particularly used by lower income groups should be made tax-free. Redistribution of assets may reduce inequalities and enhance growth. Firstly, there is a need to consider land transfers – Secondly, policy has to be geared to strengthening effective female ownership of property and access to work and educational opportunities
