ISLAMABAD - The richest 20 percent people of Pakistan are getting richer, consuming five times more than the poorest 20 percent and the difference between income and consumption is widening further owing to unfair and regressive taxation.

In the year 2011-12, the consumption share of top 10 percent was 31.3 percent while the share of bottom 40 percent was only 20 percent. This means the consumption of 18 million richest people was one and a half times more than 72 million poor people.

A study jointly launched by Oxfam, Pakistan, and Sustainable Development Policy Institute (SDPI), ahead of the federal budget 2015-16, called upon the government to address the problems of 50 million poor people across the country, who wanted to come out of the poverty cycle.

The research signifies the causes of inequality in a number of ways, including lack of opportunities to access health care and education, unequal distribution and access to land and capital. Unjust policies, including unfair taxation, low spending on social protection and services has increased inequality.

About 60 percent of Federal Board of Revenue (FBR) income comes from indirect taxes that show regressive nature of taxation. Powerful sectors gain advantage through tax exemptions, furthering income polarisation, explained Arif Jabbar Khan, Oxfam country director in Pakistan.

The research reveals that due to tax exemptions Pakistan loses Rs 500 billion annually which is 1.5 times the annual budget for education. Pakistan can get additional tax revenue of Rs 80-115 billion if the exemptions on agriculture are withdrawn. Lack of tax revenues puts pressure on the budget and leads to inflationary monetary policies which which have an important impact on the distribution of real income of the poor. Low tax base also implies that there is little room for investments in nutrition, public health and education.

Inequality and taxation have direct and critical link. Ratio of direct and indirect taxes had been consistent, said Dr Rashid Memon of Lahore University of Management Sciences (LUMS). “There seems to be a political consensus to sustain this ratio as there is no taxation on agriculture from which we can earn Rs 80-115 billion annually,” he said.

In terms of intra-province inequality, Sindh is the most unequal province in Pakistan with the highest gini index which means the divide between the rich and the poor in that province has widened, followed by the Punjab, while Khyber Pakhtunkhwa (KP) and Balochistan have the lowest levels of inequality. The level of urban inequality is considerably higher than rural inequality, which indicates that urban prosperity is not equally shared.

The research also identifies the inequality traps. Over time mobility among classes has worsened; in 1994-95, roughly 30 percent of those born to both rich and poor fathers remained in the class they were born which shows mobility was rather easier. Now 40 percent of sons born to poor fathers remain poor; only 9 percent make it to the rich class while 52 percent of sons born to rich fathers remain rich. There has been a growing difference between the income of the rich and the poor during the period of 1990-2011. In 1994-95 the top 20 percent earned two times more than the bottom 20 percent, but in 2010-11 they earned almost three times more.

The report suggests that addressing inequalities will help reduce poverty. A policy of ‘geographical targeting’ should be adopted in which development funds are allocated to the least developed areas on the basis of poverty mapping of districts. It strongly recommends that consumption taxes should be made less regressive, food and related items, particularly used by lower income groups, should be made tax-free. Redistribution of assets may reduce inequalities and enhance growth. There is also a need to consider land transfers. Effective policies for female ownership of property, access to work and educational opportunities has to be formed, resourced and implemented.

Lamenting that, currently, there are the only opportunities by which the rich get richer and the poor poorer, Dr Abid Sulehri, SDPI executive director, said and added social justice couldn’t prevail without bridging the gap between the haves and the have-nots. He also said that social justice should be provided to all without any impartiality.  He also insisted that the economy should be structured in such a way as ensures that the big fish are captured in the tax net to stop unchecked wealth accumulation.