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Huzaima Bukhari & Dr. Ikramul Haq
A number of studies confirm that rich-poor divide in Pakistan is increasing alarmingly. According to conservative estimates, 63% of poor in Pakistan are in the category of ‘transitory poor’. The rest of 32% and 5% of the population—subsisting below the poverty line—are ‘chronic’ and ‘extremely poor’, respectively. Chronic and extremely poor are those households that are always below the poverty line, all the time during a defined period. Similarly, on the other side, 13% and 21% of total non-poor (above the poverty line) have been classified as ‘transitory vulnerable’ and ‘transitory non-poor’, respectively. This portrays an alarming situation as more and more people are moving from transitory category to chronic category, courtesy regressive taxation leading to inequitable distribution of income and wealth, monopoly over assets by a few and wasteful expending by the government. Rulers in Pakistan since inception have shown extreme apathy towards the poor. They are not at all interested to make Pakistan an egalitarian society—providing economic justice to all. It is hoped that the present under the leadership of Imran Khan, being cognizant of this state of affairs, will take some concrete and practical steps remedy the situation.
A report of World Bank, State of Water Supply, Sanitation and Poverty in Pakistan, released on November 1, 2018, says that the poverty head count rate in rural Pakistan was twice as much in urban areas—36% versus 18%. What makes the situation more painful and worrisome is the fact that this gap remained “virtually unchanged since 2001-02”. This exposes the claim made in Economic Survey of 2017-18 that “over the last decade, Pakistan’s poverty headcount has witnessed a persistent decline both at national and regional levels. Percentage of people living below poverty line has declined from 50.4% in 2005-06 to 24.3% in 2015-16. Poverty in both rural and urban areas is also showing a declining trend with poverty headcount of 12.5% in Urban and 30.7% in rural areas in 2015-16”.
The World Bank study confirms that our rural areas “remain much poorer than urban areas and are far more disadvantaged in all respects of service delivery, and the present conditions show the decline in poverty has not reduced the urban-rural gap by much”. The report says that combined with the slow pace of urbanisation—only about 35% of the country’s population lived in urban areas in 2014—this gap indicated that 80% of Pakistan’s poor continued to live in rural areas.
It is highlighted in the World Bank’s report that rural households face a substantial disadvantage in virtually all aspects of service delivery. Nationally, the rural net enrolment rate was 13 percentage points lower for primary school and 11 percentage points lower for middle school than in urban areas. For girls, these gaps stood at 17 and 14 percentage points, respectively. The rural female literacy rate, at 28%, was also less than half of that in urban areas. Rural children are 8.5 percentage points less likely than urban children to have adequate immunisation by three years of age, and rural women are 10 percentage points less likely to receive prenatal care, 28 percentage points less likely to give birth in a facility or hospital, and 12 percentage points less likely to receive postnatal care. Rural households are also far less likely to have access to key utilities. They are 15 percentage points less likely to have an electricity connection and 63 percentage points less likely to have a natural gas connection than urban households.
According to report, Balochistan has by far the highest rural poverty rate, with more than 62% of its rural population living below the poverty line. However, the gap between rural and urban poverty is the widest in Sindh at almost 30 percentage points. In contrast, the urban-rural gap in Punjab and Khyber-Pakhtunkhwa was 13 and 15 percentage points, respectively.
The report notes that districts varied widely in poverty, with the richest district Abbottabad at a headcount rate of 5.8% and the poorest district—Washuk in Balochistan—at 72.5%. Much of this variation reflected differences in poverty across provinces. The vast majority of the 40 poorest districts were in Balochistan, followed by Sindh. Only three districts each in Punjab and Khyber-Pakhtunkhwa fell in this set, and they were not among the poorest in the group. Not a single district in Balochistan was among the richest 40, and only Karachi and Hyderabad in Sindh fell in this set.
The report says that divide between Khyber-Pakhtunkhwa and Punjab in the north and Sindh and Balochistan in the south “was apparent and quite stark”. It also found that districts that include large cities like Lahore, Rawalpindi, Faisalabad, Gujranwala, Sargodha, Sialkot, Multan, and Bahawalpur had much greater within-district inequality than other districts. Taking population into account, a large share of Pakistan’s poor lived in well-off districts in Punjab and Sindh, particularly Karachi, Faisalabad, and Lahore, it said. Karachi, for example, was the third-richest district in Pakistan in 2014-15, but despite its low poverty rate of 8.9% its large population share meant that 2.5% of the country’s poor lived there. Similarly, Lahore—the sixth-richest city—was home to 2.2% of Pakistan’s poor. Together, these two cities accounted for almost as many poor people as the 10 poorest districts, where poverty rates are six or seven times higher.
Besides the report of World Bank, Pakistan Social & Living Standards Measurement Survey also highlights that “most of the households in Pakistan do not have access to adequate potable or shallow water. Many of them also lack toilets and adequate sanitation systems. The Government aims to expand access to clean drinking water and improve sanitation particularly in rural areas”.
Faheem Jehangir Khan and Yaser Javed in their study conducted in 2007 noted that “water and sanitation is the neglected sector in Pakistan. Most of the households in Pakistan do not have access to safe drinking water and lack toilets and adequate sanitation systems. These poor people, mostly living in rural areas or urban slums, are not only deprived of financial resources, but they also lack admittance to basic needs such as education, health, safe water supply and environmental sanitation facilities”.
According to Pakistan Social and Living Standard Measurement Survey 2008-09, sanitation coverage has increased from 30% in 1990 to 63% in 2008-09. It is estimated that every year Pakistan losses 3.94% of GDP because of poor sanitation and water facilities, which costs Pakistan 343.7 billion rupees. With the current speed of progress on the sanitation system, Pakistan’s targets under Millennium Development Goals (MDGs) will be met by 2028. Due to poor water and sanitation, estimated 97,900 people die every year in Pakistan, and 54,000 children under age of five from diarrhea caused by poor water and sanitation services. In 2018, the child mortality rate was 46%, and water and sanitation related diseases were reported responsible for some 62% of the total number of child mortality cases in Pakistan.
In a country where 79 million people don’t have a decent toilet and nearly 30 million live below the poverty line, according to official claims, “poverty headcount has declined by 5.7 percentage points in urban areas and 4.9 percentage points in rural areas between 2014 and 2016, thereby leading to an overall decline of 5.2 percentage points decline in incidence of national poverty headcount”. This is in sharp contrast to a number of informative—though highly disturbing—studies conducted by the World Bank and Centre for Research on Poverty and Income Distribution (CRPID) showing that Pakistan ranks most exposed to poverty risks among 43 countries.
The Great Divide in today’s Pakistan relates not only to urban-rural but also to income and wealth disparities. The wealth of the nation is confined to a few families. The main burden of taxes—70% collection is from indirect taxes—is on the less privileged classes and the rich are not even ready to share a very negligible portion of their collossal wealth with the have-nots. The overwhelming majority of the elected members of parliament does not show their correct incomes and keep assets benami (in the name of others). Till today, the Benami Transactions (Prohibition) Act, 2017 has not been made effective. Even in the presence of Article 19A of Constitution, the public has no access to assets of top civil military officials, honourable judges of Supreme Court and High Courts.
The income inequalities in Pakistan have increased sharply since 1977 and the trend continues unabated despite tall claims of poverty reduction by official quarters. The main factors that govern personal income distribution include: distribution of assets; functional income distribution; transfers from other households, government and rest of the world; and tax and expenditure structure of the government. The single most devastating factor for increased income and wealth inequalities remains the regressive tax system. Incident of tax on the poor since 1991 when regressive taxes replaced progressive levies has increased substantively (35%) while the rich are paying no tax on their colossal incomes and wealth—in their case tax burden has decreased by 18% for the same period. Study of Pakistan from this political economy perspective is very crucial as our society is fast moving towards dehumanizing characteristics, unfettered and unchallenged. We are facing economic disparities, undernourishment, starvations, scarcity of eatables and lack of essential services.
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The writers, tax lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).