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1. Introduction 1.1 Statement of the problem It is a paradoxical world. On one hand, we have spectacular advancements in the area of science and technology and on the other hand, we have millions of people who have no access to food and basic essentials to survive. Poverty indeed is the most challenging problem faced by the developing and the undeveloped country. It is not wrong to say that widespread poverty in the developing & the under developed countries distinguishes them from the developed countries, where the absence of poverty is most conspicuous. According to the World Bank 2002, almost 11011 million people are living below the poverty line if the old standard of $1 per day is considered. If new standard of $2 per day is regarded then the no. of people living behind the poverty line increases to almost double that of old standard. The further sub-divisions reveal that Sub-Saharan Africa & South Asia have the highest number of people living below the poverty line i.e. 303 million people in Africa and 437 million in South Asia. The Europe and Central Asia have 10 million people living below the poverty line while Latin America and Caribbean have 42 million people living below the poverty line ($1 per day as standard). 1
Transcript
1. Introduction
1.1 Statement of the problem
It is a paradoxical world. On one hand, we have spectacular
advancements in the area of science and technology and on the other
hand, we have millions of people who have no access to food and basic
essentials to survive. Poverty indeed is the most challenging problem
faced by the developing and the undeveloped country. It is not wrong
to say that widespread poverty in the developing & the under
developed countries distinguishes them from the developed countries,
where the absence of poverty is most conspicuous.
According to the World Bank 2002, almost 11011 million people are
living below the poverty line if the old standard of $1 per day is
considered. If new standard of $2 per day is regarded then the no. of
people living behind the poverty line increases to almost double that of
old standard.
The further sub-divisions reveal that Sub-Saharan Africa & South Asia
have the highest number of people living below the poverty line i.e.
303 million people in Africa and 437 million in South Asia. The Europe
and Central Asia have 10 million people living below the poverty line
while Latin America and Caribbean have 42 million people living below
the poverty line ($1 per day as standard).
As far as Pakistan is concerned, the certain reasons like instable
political system, corruption and unequal income distribution have
resulted in a high percentage of poor in the country.
According to the study, in 1960, about 19 million people lived below
the poverty line in Pakistan. By 1980, the number of people defined by
the government as absolutely poor had grown to 34 million. And in the
1990s - between 1990 and 1995 - the number of absolute poor rose to
42 million. The current statistics present the following profile of
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poverty: 42 million or roughly 30% of the population are poor; 47
million adults or 62% of the adult population cannot read or write, 76%
of the female adult population is illiterate. In addition, eight million
children are out of school; 61 million people or 45% of the population
have no access to safe drinking water; 54 million people or 40% of the
population have no access to even basic health services; 72 million
people or 53% of the population have no access to sanitation; nine
million children under the age of five or 38% of the under-five
population are malnourished.
The extensive rise in poverty is creating an alarming situation for the
Government and the people. So there is definite need to solve the
problem.
1.2 Objectives of the Study
The objectives of the study are as follows
1) To correctly identify the causes of poverty.
2) To assess the poverty and observe the poverty trends.
1.3 Methodology
We have collected the data by reviewing different articles from
different magazines and newspapers. Some important information is
also taken from different reports.
2. Review of
Literature
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M.Ziauddin, 1999 in his article “Pakistan: now,
the poverty bomb goes off” describes that in 1960, about 19 million
people lived below the poverty line in Pakistan. By 1980, the number of
people defined by the government as absolutely poor had grown to 34
million. And in the 1990s - between 1990 and 1995 - the number of
absolute poor rose to 42 million. The current statistics present the
following profile of poverty: 42 million or roughly 30% of the population
are poor; 47 million adults or 62% of the adult population cannot read
or write, 76% of the female adult population is illiterate. The calorie-
based approach defines the poverty line as the minimum expenditure
required to achieve a daily intake of 2,250 calories per person. This
approach indicates that poverty has declined at all levels between
1986 and 1994 from 27% to 21%. The basic-needs approach defines
the poverty line in terms of the minimum expenditure required to
achieve a basket of needs consisting of food, clothing, housing, health,
education, transportation, etc. As compared when this approach is
based on expenditure pattern a mixed trend emerges and for Pakistan
as a whole poverty appears to have declined marginally from 29% to
28.7%. For Pakistan as a whole, poverty has increased from 29% to
36%.Under different regimes, Pakistan has experienced poverty and
stagnation in the 1950s, increasing poverty and growth in the 1960s,
stagnation of growth but declining poverty in the 1970s, increasing
growth and declining poverty in the 1980s and finally, increasing
poverty and falling growth in the 1990s. Today, roughly 30% of
Pakistan's population is classified as 'income poor', whereas nearly half
suffers from the deprivation of basic opportunities of life. The majority
of Pakistan's human poverty is to be found among women and in its
rural areas. If present trends continue, it is estimated that Pakistan will
take another 170 years before it can stake a claim for a place in the list
of developed nations based on socio-economic indicators. Pakistan's
economic fortunes and planning have largely been controlled by a
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narrow group of industrialists, agriculturists, politicians and civil and
military bureaucrats. And regardless of political regimes, Pakistan's
economy has traditionally been fuelled by five pumps: agriculture,
manufacture, foreign remittances, foreign aid, and a large and vibrant
black economy. These five pumps have been responsible for much of
our economic growth.
Dr Akhtar Hassan Khan, 2000 in his article
“Poverty in Pakistan” depicts that Pakistan’s experience shows, growth
may be a necessary, but certainly not a sufficient, condition for
reducing poverty. Economic growth reduces poverty only if it can
neutralize/offset the debilitating effects of large income and asset
inequalities. In 1999 the incidence of poverty in Pakistan was 32.6 per
cent of the total population (35 per cent of rural and 26 per cent of
urban) having almost doubled from 17.3 per cent in 1988. Moreover,
independent estimates claim that the proportion of the population
below the poverty line has grown to 36 per cent since then, which
translates to 50 million people, more than the population of the
country at the time of independence. However more important than
absolute poverty is the increasing ratio of unequal distribution of
income. The share of household income of the poorest income group
has shrunk from 8.4 per cent in 1970-71 to 6.2 per cent in 1997-98 and
that of the richest increased from 41.5 per cent to 49.7 per cent over
the same period, reflecting the growing polarization. He says that the
poverty forces the poor to minimize risks and as a result they opt for
low productivity ventures. The fear of losing limited resources prevents
risk taking. To preserve security of livelihood they opt for unproductive
and low-paying activities which results in poverty. One of the main
reasons for increase in poverty in 1990’s has been the slowing down of
economic growth. Since 1996-97, national per capita income grew by
less than one per cent per annum; the growth rates of 6.7 per cent per
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annum from 1997 to 1988 and five per cent between the second half
of the 1980s and the early 1990s fell to 4.1 per cent and to 3.3 per
cent thereafter.
Dr. Akmal hussain, 2001 in his article “Poverty
in Pakistan” explains that Overcoming poverty means shifting the
location of the poor in the local power structures from being victims to
active subjects in achieving equitable access over markets and over
institutions. A paradigm, according to Kuhn the great philosopher of
modern science, is a framework of thought within which questions are
posed and answers pursued. Dr. Akmal Hussain had proposed that the
prevailing paradigm of poverty may have become obsolete and it is
time to replace it with a new one. The essential flaw in the prevalent
poverty paradigm is that the issue of power is systematically excluded
from both the understanding of poverty as well as policies for
overcoming it. Similarly some of the large NGOs operating in many
different districts pursue poverty alleviation by trying to provide micro
credit to the poor. Increased resources by the government or micro
credit by NGOs may be a necessary but is not a sufficient condition for
overcoming poverty. The poor face markets, state institutions and local
structures of power that discriminate against the poor and deprive
them of a large proportion of their actual and potential incomes. Most
studies on poverty in Pakistan have examined the problem simply in
terms of measuring the number of people below certain poverty lines.
The poor lose as much as one-third of their income due to unequal
access over input and output markets and extortions by the local
administration. For example, as much as 51 per cent of the extremely
poor tenants borrow money from the landlord. The evidence shows for
example that of those tenants who borrow from the landlord as many
as 57.4 per cent work on the landlord’s owner cultivated portion of the
land without any wages at all, and 14 per cent work for a daily wage of
only Rs 28 which is substantially below the market wage rate for
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unskilled labor. That health is a major trigger that pushes people into
poverty and the poor into deeper poverty. Given the inadequacy of the
government’s health facilities as many as 85 per cent of the poor go to
private allopathic medical practitioners for treatment. The
expenditures on such treatment are so high that poor households are
obliged to borrow mostly from informal sources to finance the medical
expenses of their families. Access over good quality health services is
a question not just of money but also of power and influence to get
hold of a proper doctor or a hospital bed. Thus the analysis and
evidence within this new poverty paradigm suggest that the key to
overcoming poverty is to empower the poor to get better access over
markets, governance, and the institutions that provide public services
such as health care, education and justice. Dr. Hussain’s work on both
institution building for the poor and action research over the last two
decades, shows that overcoming poverty means empowering the poor
to acquire greater control over their use of productive resources
including their own labor, and keeping their incomes and savings in
their own hands. Overcoming poverty means shifting the location of
the poor in the local power structures from being victims to active
subjects in achieving equitable access over markets, and over
institutions providing credit, health and education services. Attempts
at poverty reduction without empowering the poor in this specific
sense, will merely perpetuate poverty.
Shahzeb Jillani, 2002 in his analytical article
“Pakistan's poor seek share of riches” describes that "IMF and the
military government's economic team may congratulate each other on
doing a fine job, but if you ask an ordinary Pakistani, poverty and
joblessness have only made matters worse for the majority." In its
annual review of Pakistan's economy released last week, the IMF said
the economic outlook was broadly encouraging, but added that more
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reforms were needed to put the nation on a better footing. The report
came just days after the international lender approved the latest
$114m payment for the country, under a $1.3bn poverty reduction
program. However, despite the overall praise, the IMF shared concerns
of growing poverty being voiced by the critics. Hence the stresses in
the IMF report on Pakistan Economic Mangers to do more to reduce
poverty. Specifically the IMF has urged Pakistan to boost tax collection
and increase spending on basic health and education. But, it seems,
that realization is already prevailing. Two weeks ago, the State Bank of
Pakistan came out with its own annual report on the economy with a
similar message. The bank predicted that unless there was a major
downturn globally, Pakistan's economy was likely to achieve a 4.5%
growth target in the current financial year. However, the bank was
categorical that progress would only come through if Pakistan
maintained the momentum of ongoing reforms.
A Poverty Assessment by the Asian
Development Bank, 2002 in its report “Poverty in Pakistan: Issues,
Causes and Institutional Responses” shows that more than 12 million
people were added to the ranks of the poor in Pakistan between 1993
and 1999. During this period, the level of poverty worsened from 26%
of the population falling below the poverty line in 1993 to 32% below
the line in 1999.Thus it would not be an exaggeration to say that more
than a third of the country's population is currently living in poverty. In
1997, the income share of the bottom 20 percent of households had
declined to 6.9 percent from 7.9 percent in 1987, and the income
share of the bottom 40 percent of households declined from 20
percent to 18 percent. During the same period, the ratio of the share of
the top quintile to that of the bottom quintile increased to 6.5 from 5.2
for all areas. While poverty has intensified in the last decade, (HDI)
shows that Pakistan's level of human development is low for its level of
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income. Pakistan's education indicators are the worst in South Asia.
The report explains that Corruption and political instability, which are
both manifestations of governance problems, have resulted in waning
business confidence, deteriorating economic growth, declining public
expenditure on basic entitlements, low efficiency in delivery of public
services, and a serious undermining of state institutions and rule of
law, which in turn translates into lower investment levels and growth.
The report also analyzes responses to poverty in the country. Poverty
alleviation has to be effected not only through macroeconomic policies,
but also by bringing about significant improvements in the structure
and functioning of systems of governance. In some areas, such as
devolution, public expenditure management, anti-corruption initiatives,
and the independence of the State Bank of Pakistan, appreciable
progress has been made. According to the Country Director, ADB, M.
Ali Shah, improving governance will be the central theme and the
major focus of ADB's poverty reduction strategy for Pakistan.
K J M Varma, 2003 in his article “Pak economy
steady; poverty up 33% “says that Ringing alarm bells over increasing
numbers of poor and unemployed in Pakistan, the country's state bank
said the level of poverty rose to 33 per cent from 20 per cent in the
last 15 years, even though the economy looked up with a growth rate
of 5.1 per cent. The report explained, however refrained from blaming
the Pervez Musharraf regime for the increase in poverty, stating that
the increase happened over 15 years and not because of the policies
pursued in the last four years. The economy appeared to be steady
with the GDP growth remaining at 5.1 per cent in the fiscal year 2002-
03, mainly due to the improvement of harvests of key crops and
increase in exports to a record $11.1 billion. The country's forex
reserves shot up to a record over $11 billion and the current account
surplus jumped to an all time high of $4 billion, the foreign remittances
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also accelerated to a new high of $4.2 billions. A study of socio-
economic dimensions of poverty suggests that Pakistan's economic
performance has been dismal during the 1990s. Not only the income
poverty but also the income inequality increased during the period.
About the status of Pakistan's external debt, it said the Paris Club debt
restructuring and a $1 billion debt write-off by the United States also
catalysed significant improvement in the country's debt profile. Now
the amount of foreign debts stands almost $7 Billion.
Anjum Altaf, 2003 in his article “Op-ed: Causes
of poverty” says that A closer look at the evidence might lead us to
conclude that the causes of poverty have less to do with literacy,
democracy or religion and much more to do with economic and
political policies. It is not the ‘ignorance’ of the populations, however,
but the ‘ignorance’ of the ruling groups who are all highly educated. It
is hard to deny that ignorance is the biggest and most basic reason for
poverty. East Asia is a well documented example where the number of
people living on less than one dollar a day has fallen almost two-thirds,
from 720 million in 1975 to 210 million in 2002 almost entirely because
of the rapidity of economic growth. On the other side are countries
where ruling groups allocate the bulk of their resources to defense,
foreign policy adventures, fomenting domestic strife to promote power
or in stifling business to protect vested interests. The political and
economic choices of such ruling groups are not directly influenced or
constrained by the illiteracy of their populations. When people
understand what lies at the bottom of their poverty, when political
parties mobilize them on the basis of this understanding, and when
analysts focus on the consequences of specific political and economic
policies, perhaps then there will be hope for change in such countries.
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Mohsin Babbar, 2003 in his article “Enigma of
the Poverty Line” says that the Planning and Development Division
vide a letter number 1(41) poverty/PC/2002, dated 16th August 2002
suggested that Rs. 673.54/person/month be the official poverty line.
The letter implied that the poverty line is being built on a
comprehensive household survey conducted in 1998-99. All the
economic markers, like inflation and cost of living, have risen since
1998, rendering, sustainable living an unbearable burden for the
common man. It seems quite illogical to assume that a man with a
family can live on a monthly income of Rs. 673.54. Generally speaking
though, poverty varies from place to place, and every country marks
its line with reference to its stage of economic development and social
values. In Pakistan’s case, none of the foreign monetary institutes,
other than the UNDP, formulate to the concept of US$ 2/day as the
poverty line. They remain silent on this issue and follow the
government figures on poverty. The BBC reported that the World Bank
deems a person as living below the poverty line if he/she is unable to
meet the basic and minimum needs and demands of life. Following this
definition another set of question arise. What are those basic needs
that one has to have in order to live a modest living? What are the
minimal needs? Do they vary for different countries? If so, then surely
the poverty line becomes even more dynamic and more difficult to
define. When the question was put to The Asian Development Bank,
their reply was vague, quoting the government figures, stating that
according to the government survey conducted in 1998, and published
in 2001, a total of 32.2 percent of total population of Pakistan is living
well below the poverty line, and that the ADB refers to these figures for
measuring poverty line.
The representative of IMF, Pakistan mission, when asked about their
criterion for demarking the poverty line, stated that the IMF does not
fix poverty line in any country, including Pakistan. However the Fund
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adopts the poverty line defined by the government reports. According
to the UNDP Human Poverty Index, 1997, 72 million people in Pakistan,
nearly 50% of the total population was living below poverty line. While
according to UNDP Human Development Report, 2002, this figure rose
to 84.6 per cent of the total population, translating to roughly 120
million people earning less than US$ 2/day, living an impoverished life,
with no access to the basic amenities of life. More worse is that, the
situation in the agricultural sector was gloomier. Government subsidies
were taken back on pesticides and fertilizers, thereby inflating the cost
of crop production. Small farmers, especially, found themselves caught
in the vicious circle of poverty when their crop yield could not match
the cost of production, forcing them to borrow from the bank, or other
sources, for both the next crop and to support their livelihood, plunging
them deeper into the swelling poverty indices. Whatever the reasons
behind the deteriorating living human condition and rising poverty,
such as, flawed socioeconomic policies, the dictates of the foreign
donor agencies, or excessive spending on defense, what is evident is
that at the end of day the common people suffer the most and are the
hardest hit, as the benefits of any improvement in economy never
reach them. The rulers and policy makers in Pakistan have failed to
recognize the intensity with which poverty is rising in the country. This
was clearly illustrated recently, when the government issued a strongly
worded denial after the World Bank reported a rise in the poverty level
in Pakistan. The Finance Minister, Mr. Shaukat Aziz, surprised
everybody when he claimed that giving importance to reports released
by foreign institutes was in vogue, even when their findings “lacked
credibility” and were completely inaccurate! Was it not the same
honorable Minister who, himself, praised these financial institutions for
their active guidance in designing and planning the government’s
fiscal policies? Were they not credible then? One thing is for certain
and that is the inflation will continue to rise and the poverty line will be
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re-defined yet again, as the divide between the rich and poor widens.
Till such a time the poor will keep struggling as they wait for the
promised economic uplift through the dictates of donor agencies –
which have yet to materialize.
Benazir Bhutto, 2004 in her article “Without a
War on Poverty, We Will Never Defeat Terror” in Guardian, UK. The
whole world is focusing on the elimination of the terrorists & the
terrorism from the world. The crisis of poverty is effectively
disregarded. In Pakistan the talk of stock market rises and foreign
exchange increases hides a more troubling picture. The numbers of
young people killing themselves because of hunger was 1,200 in six
months. These are the officially recorded figures - the real figures are
believed to be much higher. In Pakistan, the average income has been
shrinking. The cost of living is rising sharply. It is becoming
increasingly difficult for the ordinary citizen to pay fat utility bills and
buy the basic necessities of life. The Pakistan Economic Survey admits
that poverty has increased since democracy was derailed in 1996. The
gap between the rich and the poor is growing at an alarming rate. The
war against terrorism is primarily perceived as a war based on the use
of force. However, economics has its own force. Militancy and greed
cannot become the defining images of a new century that began with
much hope. The time has come to rethink. By returning to the values
of democracy, the will of the people, broad-based government and
building institutions that can respond to the people, the social malaise
can be addressed. The neglect of rising poverty against the
background of religious extremism can only complicate an already
difficult world situation.
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T. Kurosaki, 2005 in his article “Poverty in Pakistan
and Community Development” explains the characteristics of poverty
in Pakistan. He says Within South Asia, Pakistan is lagging more in
human development than in economic growth. Incidence of poverty
(headcount of those individuals whose consumption expenditure is
below the Poverty line) is high at more than 30%, about 40 millions in
absolute terms, and increasing rapidly in the late 1990s.Income
poverty is more severe in rural areas, among the landless, and closely
correlated with deprivation in education and health. Macro
performance during the 1990s was not pro-poor because the growth
rate was lowered and the labor absorption capacity of economic
growth was reduced. The income poor in Pakistan not only suffer from
average low consumption but also are subject to high fluctuations in
consumption due to income risk and the lack of safety net measures.
He emphasizes Education is key to employment and reduction of
poverty. Livestock is more pro-poor than crop agriculture but its role in
economic growth may be limited to short- to middle-run. Social safety
nets are weak, especially those provided by the public sector or by
formal institutions. Private networks based on personal relations are
more important safety nets.
Irshad Saleem, 2006 in his article published in
The Dawn Newspaper (Pakistan) states that the Govt. of Pakistan
claims poverty to be 23.9% while the World Bank and UNDP estimates
are 25.7% and 28.3% respectively. The Pakistan Economic Survey
2006-07 acknowledges that the gap between the rich and the poor in
the country widened in the period 2001 and 2005 (when the two
surveys that have provided the data were held). The ratio of the
income of the richest 20 per cent and the poorest 20 per cent went up
from 3.76 to 4.15. The Gini Coefficient, which is universally regarded as
an efficient measure of income equality, changed from 0.2752 to
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0.2976 (that is for the worse). The thrust towards privatization of
facilities in the social sectors, especially education and health, has
made these services more costly and less affordable for the common
man. The government’s own figures say that the poor are now
spending 14.6 per cent more (as compared to 2001) on health. The
poor are spending 50 per cent more on transport and 11 per cent more
on food. It is time the government attended earnestly to the problems
of poverty rather than gloss them over by juggling around with figures.
Without real progress in this field, the millennium development goal of
halving poverty by 2015 will never be achieved.
Qurat-ul-ain, 2006 in her article Poverty in
Pakistan states that Poverty cannot be described it can only be felt.
The proportion of people living in extreme poverty on global level fell
from 28 percent in 1990 to 21 percent in 2001 (on the basis of $1 a
day). In absolute numbers the reduction during the period was 130
million with most of it coming from China. In Sub-Saharan Africa, the
absolute number of poor actually increased by 100 million during the
period. The Central and Eastern Europe and the CIS also witnessed a
dramatic increase in poverty. While incidence of poverty declined in
South Asia; Latin America and the Middle East witnessed no change.
Although extreme poverty on global level has declined, the gap
between the rich and poor countries is increasing, even when
developing countries are growing at a faster pace than developed ones
– perhaps due to the large income gaps at the initial level. In a world of
six billion people, one billion have 80 percent of the income and five
billion have less than 20 percent. Poverty has many dimensions in
Pakistan.Sound macroeconomic policies and implementation of
structural reforms in almost all sectors of the economy have
transformed Pakistan into a stable and resurgent economy in recent
years. The real GDP has grown at an average rate of over 7.5 percent
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per annum during the last three years (2003/04 to 2005/06). With
population growing at an average rate of 1.9 percent per annum, the
real per capita income has grown at an average rate of 5.6 percent per
annum. The evidence provided by the Labour Force Survey 2005 (First
two quarters) clearly supports the fact that economic growth has
created employment opportunities. Since 2003-04 and until the first
half of 2005-06, 5.82 million new jobs have been created as against an
average job creation of 1.0 – 1.2 million per annum. Consequently,
unemployment rate which stood at 8.3 percent in 2001-02 declined to
7.7 percent in 2003-04 and stood at 6.5 percent during July –
December 2005. Total remittances inflows since 2001-02 and until
2005-06 have amounted over $ 19 billion or Rs.1129 billion. Over the
last five years the government has spent Rs.1332 billion on poverty-
related and social sector program to cater to the needs of poor and
vulnerable sections of the society.The latest estimate of inflation -
adjusted poverty Line is Rs.878.64 per adult equivalent per month ─ up
from Rs.723.40 in 2001. The percentage of population living below the
poverty line has fallen from 34.46 percent in 2001 to 23.9 percent in
2004-05, a decline of 10.6 percentage points.A strong growth in
economy, rise in per capita income, a large inflow of remittances and
massive spending on poverty-related and social sector programs were
expected to reduce poverty in Pakistan.Thus we can conclude that
Pakistan has emerged as ‘Asian Tiger’ with reference to the Economic
growth during last couple of years. And government of Pakistan spent
about Rs.1332 billion to reduce the poverty. And as a result poverty
reduced from 39.26 to 28.10 percent (rural) and from 22.69 to 14.9
percent (urban). Concisely, in spite of all efforts of government poverty
still stands as an iron wall for Pakistan’s economy. And to break this
iron wall we are in need to apply poverty reduction strategies at
utmost level.
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John wall, 2006 in his article “Poverty in Pakistan,
op-ed by Pakistan Country Director” Poverty is an ethical concept, not
a statistical one. It is not only lack of roti, kapra aur makan—food, cloth
and shelter. Amartya Sen aptly sums up many dimensions of poverty
as lack of "capability"—capability to overcome violence, hunger,
ignorance, illness, physical hardship, injustice and voiceless ness. The
World Bank has argued that poverty often lies in the absence of
opportunity, empowerment and security, and not just the absence of
food on the table. However statistically measuring poverty in the same
country at different periods of time raises many difficulties. According
to CPI and SPI measures, poverty headcount had been rising
throughout the 1990s and peaked in 2000-01, a bad drought year. It
then fell sharply in 2004-05, a very good agricultural crop year. Under
the CPI, poverty headcount dropped by 10.6 per cent, under the SBI it
dropped five per cent. Those two estimates probably capture the
extremes. A less flawed price index might well find a third estimate in
between these extremes. The reason for the difference is that incomes
of a very large portion of the population are just above and just below
the official poverty line. Compared to 2000-01, the consumption
distribution has improved substantially in 2004-05, meaning almost all
families are better off. The fact that there is an enormous clustering of
population around the poverty line means that even small changes in
consumption or income can affect poverty headcount ratios
dramatically. This is the case in Pakistan, where the improvement in
consumption distribution in 2004-05 has led to a sizeable decline in
poverty. It also explains why a difference in the estimated rate of price
inflation between 2000-01 and 2004-05 of about eight per cent
(depending on whether we use CPI or SBI) makes such a huge
difference in the estimated fall in poverty. This clustering of Pakistan’s
population just above and just below the poverty line also implies that
families are quite vulnerable to falling into poverty with the slightest
16
run of bad luck. A drought or bad agricultural year, an illness of a
breadwinner, rises in prices of basic commodities not compensated by
rises in income—all of these can cause families to fall into poverty. The
2004-05 poverty data show that rapid growth did reduce poverty quite
sharply — whether by five or 10 per cent is somewhat academic. It also
points to the urgent need for enhancing capabilities through better
social mobilization, education, public health and rural infrastructure.
Huzaima Bukhari & Dr Ikram ul Haq, 2006 in
their article “Central Board of the Rich” say that Pakistan's tax system
puts disproportionately more burden on the poor than on the rich. This
imbalance needs to be removed for poverty to decrease. According to
a study conducted by the Centre for Research on Poverty and Income
Distribution (CRPID), 63 per cent of the poor in Pakistan fall in the
category of 'transitory poor'. This has also been observed by the State
Bank of Pakistan (SBP) in its annual report 2004-05 which states that
the standard definition of 'transitory poor' includes those households
that are below the poverty line for most of the time but not always
during a defined period. Of the rest of the poor, 32 per cent were found
to be 'chronic' poor and 5 per cent 'extremely poor'. Chronic and
extremely poor are households that are always below the poverty line,
all the time during a defined period. On the other side of the divide 13
per cent of the non-poor population (living above the poverty line) was
classified as 'transitory vulnerable' and 21 per cent as 'transitory non-
poor’. But it is an undeniable fact that in Pakistan, ill-directed, illogical,
regressive and unfair tax system is widening the existing divide
between the rich and the poor. The sole stress on indirect taxation
(even under the garb of income taxation through presumptive tax
regime on goods and services) without evaluating its impact on the
economy and the life of the poor is a serious cause for concern. The
contribution of direct taxes as percentage of the Gross Domestic
17
Product (GDP) was merely 3.01 per cent in 2003-2004, whereas in
2002-2003 it was 3.15 per cent (Source: Central Board of Revenue
(CBR) Year Book 2003-04).Exorbitant rate of General Sales Tax (on an
imported article of public consumption, the effective rate of indirect
tax before any further supply is 42 per cent. Nowhere in the world is
such a high rate of tax prevalent on imported goods) and ever-growing
price acceleration in petroleum products has crippled the purchasing
power of people. As a result, a large segment of the middle class is
being pushed into lower middle class category while the total number
of persons living below the poverty line is also increasing at an
alarming pace. The priority of our rulers -- military and civil alike --
remains achieving revenue targets. But they will have to find ways and
means to come out of this tangle to make Pakistan a competitive place
where investors find satisfactory conditions to live and invest. In a
country where there is no security of life or property, let alone the
availability of a host of tax benefits and other incentives, investors will
never venture to risk their capital. The total amount of income tax
collected in financial year 2003-04, was Rs 157,448 million. If we
subtract tax collected at source on goods (Rs 22,829 million) and
services/contracts/supplies (Rs 24,959 million) which are in substance
indirect levies, the rest of the collection comes to Rs 109,703 million.
This means that the collection of direct taxes as percentage of total
revenue is only 21.06 per cent and not 31.73 per cent as claimed by
the CBR Year Book 2003-04. After adjusting for this miscalculation,
direct tax-to-GDP ratio for 2003-04 is a dismal 2.1 per cent and not
3.02 per cent as claimed by the CBR. It proves beyond any doubt that
the tax system is directly contributing to rising poverty as people who
possess enormous income and wealth are not being subjected to
income taxation. It hardly needs any further evidence to show that the
CBR has been single-handedly destroying Pakistan's trade and industry
and contributing to rising poverty by:
18
? Leaving exorbitant sales tax and forcing importers for self-assumed
value addition even before actual sales;
? Imposing indirect taxes on goods and services under the presumptive
tax regime in the garb of Income Tax Law;
? Imposing withholding tax without any facilitation and then taking
punitive action on non-compliance or using it as a revenue collection
tool;
? Withholding undisputed refunds payable to taxpayers;
? Making excessive tax demands and
? Resorting to all kinds of negative tactics and high-handedness to
meet its budgetary targets.
Actions of the tax machinery are detrimental to economy, social
justice, business and industry. If a given amount of revenue is needed
to finance public services, then each taxpayer should contribute in line
with his ability to pay taxes. Those who possess more economic power
(income and wealth) should contribute more to the public exchequer
and vice versa. The ability to pay principle views tax policy issues in
isolation of incidence of public expenditure. Many regard this principle
as the most equitable and just method of taxation. It is emphasized
primarily for its re-distributive role. We in Pakistan have completely
deviated from this principle, though an equitable redistribution of the
national wealth is a constitutional obligation of the government. The
existing tax system is the worst expression of colonial heritage. The
common man is subjected to paying 15 sales taxes on essential
commodities. (Actual tax incidence on imported commodities is 42 per
cent on finished imported goods, if we take into account customs duty,
15 per cent sales tax, and mandatory value addition of 10 per cent and
6 per cent income tax.) But the mighty sections of society such as big
industrialists, landed classes, generals and bureaucrats are paying no
wealth tax/income tax on their colossal assets/incomes, courtesy
exemptions they have granted to themselves, as they are the rulers.
19
According to SPDC report, Pakistan's tax regime consists of four main
revenue sources: GST, CED, Customs Duty and Income Tax. Its
structure is dominated heavily by indirect taxes, which together make
up over two-thirds (68 per cent) of combined federal and provincial tax
receipts. If surcharges and presumptive taxes levied under the garb of
income tax are included, the report observes, indirect taxes rise to
over three-fourth (78 per cent).GST claims 9.3 per cent of the income
of the poorest 10 per cent of households, but only 5.9 per cent of the
income of the richest 10 per cent. In other words, the burden of GST on
the lowest decile is 58 per cent higher than on the highest decile. But
CED is the most regressive tax. Its burden on the lowest decile is 100
per cent higher than on the highest decile. The customs duties are the
least regressive but even their burden on the lowest decile is 28 per
cent higher as compared to that on the highest decile. Policymakers
have exempted selected food items like wheat and rice from GST. This,
however, does not imply zero-rating of GST on these commodities
because the inputs that go into their production are all subject to sales
tax. That is why though the nominal tax rate on these items is zero,
the effective tax rate on them amounts to about 7 per cent. The
average burden of direct taxes is 0.3 per cent, while the burden of
indirect taxes is 13 per cent. The average burden of personal income
tax on household incomes halved from 0.6 per cent in 1987-88 to 0.3
per cent in 2001-02. The progressively of the tax rate has also declined
over this period. This can be discerned from the fact that while the
burden of personal income tax as a percentage of household income
has doubled from 0.1 to 0.2 per cent for the 7th decile, the
corresponding burden for the 10th decile has declined by half from 4.3
to 2.1 per cent. "The preceding incidence analysis of the tax regime
shows that the richest 10 per cent of households bear the least burden
of indirect taxation and that their relative advantage with respect to
direct taxes has further improved over the last decade and a half.
20
Thus we can analyze from the study that there is significant
improvement in the economy since the last five years. The poverty has
also been reduced significantly but still there is definite need to devise
such policies which will help us in eradicating the core causes of the
poverty. i.e. unemployment, low productivity of labor, lack of
education, lack of awareness, lack of proper facilities, unstable
economic and political systems, unequal income distribution, over
population and feudalism.
3. Analysis of Data
3.1 Past Analysis
1960’s
Macro Variables 1960’sReal GDP (% growth rate) 6.8%
