thomas koch /

50 shades of inequality in Pakistan

When it comes to the gnawing gap between the rich and poor, there is a resigned indifference.
Published May 13, 2015

Everyone wants a "naya" Pakistan. Many dream it to be a Dubai-lookalike - a perfect mix of east and west; others wish it to be more orderly like Singapore, where littering, daubing graffiti, jaywalking, spitting, urinating anywhere but in a toilet are offences and come with a penalty.

Ironically when it comes to the gnawing gap between the rich and poor, there is a resigned indifference.

Few Pakistanis ever say they want a Pakistan where everyone should have access to justice and adequate nutrition, clean drinking water, enough food for their families, quality education and healthcare. A Pakistan where political participation and power is shared between the rich and poor regardless of gender, class or religion and most importantly where wealth is not concentrated in the hands of a handful.

There’s been a lot of ink spilled on how, less on why.

And fewer still realise that while incredible human progress may have been made across the globe as well in Pakistan, it is stymied by the scourge of rising inequality.

Lets take a long look at the various dimensions of inequality and see if we can find a way out the gaping hole.

In Pakistan the 18 million richest people's total consumption is 1.5 times more than the poorest 72 million people.

Inequality has many different dimensions - race, gender, geography and economy - and they all work in conjunction to make it pervasive.

Often the different manifestations of inequalities - of income, assets, public services - remain unaddressed.

Inequality traps:

Upward mobility - rich remain rich

Source: Oxfam study: Multiple Inequalities and Policies to Mitigate
Source: Oxfam study: Multiple Inequalities and Policies to Mitigate

Oxfam's study shows that 40 per cent of sons born to the bottom quintile father remain in the bottom quintile; only 9 percent make it to the top quintile while 52 per cent sons born to rich remain rich.

Education in Pakistan

Source: Oxfam study: Multiple Inequalities and Policies to Mitigate Inequality Traps in Pakistan (March 2015)
Source: Oxfam study: Multiple Inequalities and Policies to Mitigate Inequality Traps in Pakistan (March 2015)

The number of out-of-school children in Pakistan is the 2nd highest in the world. According to Alif Ailaan there are 25 million boys and girls between the ages of 5 and 16, who are out of school.

Gender inequalities

Pakistan ranks last in women participation in the work force among the South Asian Association for Regional Cooperation (SAARC) countries - Oxfam study: Multiple Inequalities and Policies to Mitigate Inequality Traps in Pakistan (March 2015) “Women comprise 42pc of the total family labour.”

Unfortunately this major contribution goes largely unacknowledged and unrewarded - Women Agriculture and Rural Development: A Synthesis report of the Near East Region, FAO, Rome.

Their output has never been accounted for or incorporated in national statistics. In return for their contributions they are fed and provided with clothes etc.

According to government figures, the female labour participation rate is 18 per cent, compared to 71 per cent for men.

However, according to Human Development in South Asia 2010/2011: Food Security in South Asia by the Mahbub ul Haq Human Development Centre, the share of the female labour force in the total agricultural labour force in Pakistan since 1980 has increased to 30 per cent.

Agriculture may have the highest number of women working in the sector but 80 per cent of these women are regarded as unpaid family workers.

What's even more unfortunate, women own less than 3 per cent of the land and those who do have little control over it despite being such a strident force.

But these manifestations can be problematic as they take on a whole new hue when looked at from the urban and rural lens or between provinces.

Even within a province inequality can be glaring. For example, Punjab may be among the most developed province but persistent disparity abounds in southern Punjab (e.g. Ranjanpur) compared to northern (Lahore, Gujranwala) and central districts (Sargodha, Hafizabad). Between provinces, Sindh is the most deprived.

So how is inequality measured?

Mustafa Talpur, senior manager Policy Advocacy & Communications at Oxfam International, explains: "While we see it all around us, it is elusive when it comes to measuring it."

According to him there is no independent research organization to collect and analyse the data on household income; the only source is the household survey carried out by the Pakistan Bureau of Statistics but it has its limitations. Carrying surveys on income inequalities are difficult.

"They are often suspect (the rich often do not want to tell their incomes), incomplete (since these depend on smaller sample sizes) and often replete with inaccuracies. That's when consumption (in economics it is the use of goods and services by households) estimates come in handy.

The research carried out by LUMS for the recent Oxfam study, said Talpur, ended up relying on non-income means to measure the level of inequality in the society. "For example tax evasion; structure of taxes; rising prices of essential items and how these affect the poor; comparing assets and road density of different geographical locations," he said.

What does extreme inequality do to society?

Extreme inequality pervading in societies hurts all of us and makes getting out of the quagmire of poverty all the more difficult. Social scientists say inequality:

IMF economists in an essay in The Occupy Handbook, which analyzes the grassroots Occupy Movement, blame the yawning inequality for "destructive, self-perpetrating spiral of social polarisation, growing divisions" that resulted in the crisis.

Can the pendulum swing?

While Dr Kaiser Bengali expresses that: "Abolition of inequality can never be a rational objective, as different people and regions have different endowments", still inequality is not written in stone; it can be minimised.

But for that some policy choices have to be made. A concerted effort has to be made to come up with a fairer economic regime and political system that looks at everyone equally.

We also asked a few people if they were asked to put things right how would they go about it:

"Implement land reform; enforce wealth and income tax collection; decrease indirect taxation; enforce minimum wage; create microcredit opportunities; free quality schooling till Matriculation; create vocational skills centres," is how Dr Pervez Hoodbhoy would tackle inequality.

"Raise direct tax base, reduce indirect taxes, abolish absentee farming, and raise public expenditure on low income housing and utilities (water supply, sanitation), public transport, education and health," said Dr Kaiser Bengali.

There may be no simple formula to reduce or end the poor-rich gap. However, certain steps can be taken to address the issue:

• Household surveys - quality surveys should be carried out so that policy decisions are accurate and relevant.

• Inflation - increases poverty and inequality

• Taxation - structural weaknesses (narrow tax base, massive tax evasion and administrative weaknesses) in the tax system.

Level the playing field

According to Islamabad-based think tank, the Sustainable Development Policy Institute's deputy executive director, Dr Vaqar Ahmed, the government can reduce inequality.

Has the present government tackled the hydra of inequality by coming up with pro-poor policies and to reduce the rich-poor gap?

SDPI's Ahmed, doesn't think so, at least not enough: "Prices came down due to reduced global oil and commodities prices. So a good sign for the poor and will reduce income inequalities. However, consumption inequalities and horizontal inequalities (e.g. gender gaps) persist.

As for the schemes for the youth including small business loans; micro-interest free Qarz-e-Hasana; youth training and skill development; free assistance and the famous 'laptops' distribution scheme; he termed them a "disaster" and "poorly planned and executed".

Similarly, in Punjab, the PML(N) has been subsidising essential food commodities for the poor e.g. the Sasti roti and the Yellow cabs schemes, etc., but till a detailed evaluation of such programmes is conducted, Ahmed is not sure how it may have benefited the poor.

Further, said Ahmed, the pressure on the present government to reduce the public sector development programme to meet the fiscal deficit conditions of IMF must be resisted. "This can be done through increasing own tax resources and investing them efficiently for development purposes," he said.

Check rising inequality through tax reforms

• In Pakistan, in 2013-14, nearly Rs 500,000,000,000 were lost due to tax exemptions. This is more than 1.5 times the total education budget of Pakistan (Oxfam report March 2015).

• At the global level, Oxfam has calculated that a tax of just 1.5 per cent on the wealth of the world’s billionaires, if implemented directly after the financial crisis, could have saved 23 million lives in the poorest 49 countries by providing them with money to invest in healthcare.

Naming and Shaming does work

Out of 1,169 parliamentarians, only 1,040 have filed tax returns for the Fiscal Year (FY) 2013-2014 according to the Parliamentarians Tax Directory (PTD) by the Federal Board of Revenue (FBR).

While the lawmaker's contribution to government exchequer remains a paltry Rs 239 million, an average of Rs 5,94,763 for each of the 401 members of the National Assembly and Senate, it nevertheless showed that these parliamentarians paid nearly double the amount in taxes in 2014 as compared to last year.

Five prominent parliamentarians missing from the PTD

• Murad Saeed

• Ghulam Rabbani Khar

• Makhdoom Amin Fahim

• Arif Alvi

• Sharmila Farooqui

In 2011, according to a report by The Center for Investigative Reporting in Pakistan (CIRP), only a third of the country's 446 federal lawmakers bothered to file income tax returns that year.

Umar Cheema, working in The News who founded the CIRP to improve journalistic standards in Pakistan, says tax compliance in Pakistan is pathetically low and what's even more unfortunate is that the average Pakistani does not even know or care about it and clearly reflects on the people they elect.

For that he holds his fraternity accountable whose job is the educate and inform the public. "Under every stone is a story on how people find ways, mind you through legal loopholes, to wiggle out of paying taxes. Yet journalists fail to investigate or write about these tax cheaters," he said, adding: "It doesn't require any rocket science to see the lifestyle they maintain and the paltry sum they pay as tax, just see the parliamentarians tax directory published by the FBR, for the year ended 30 June 2014. It's just a matter of connecting the dots."

The Oxfam report proposes that through the new tax reforms consumption taxes should be made less regressive "by having different levels of taxes on different goods" and essential foods like grains etc., consumed by the lower income groups should be made tax free. Further it suggests making the FBR independent and insulated from political influences.

If it has adequate financial and technical resources to enhance their data collection and assessment capacity, it can preempt the tax evaders.

Why potential tax payers cannot be brought under the tax net?

In Pakistan only those people are caught in the tax net who don’t have a choice. These are the salaried tax payers, business individuals who suffer tax withholding at source or individuals who have un-earned income in the shape of profits from bank accounts, dividends, capital gains etc.)

Breaking the cycle

Income, education and educational choice are linked together, reinforcing one another and unless there is intervention through provision of education (if the government focuses on quality of education, and in particular girls education, and taking it to scale) since research suggests there are higher returns on this, the cycle of inequality will continue.

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