Informal and religious taxes and transfers in Pakistan

This paper focuses on religious taxes and transfers in Pakistan and assesses their role in a broad consideration of state-based and informal mechanisms of taxes and transfers to private households. The research is part of a wider appreciation of the roles of informal and formal taxes and transfers in overall fiscal policy and their impact on inequality and the distribution of household incomes.

Key Messages

Informal transfers are ubiquitous in Pakistan, where 94% of households either receive or pay transfers between households, and 55% of households do both.
International cash remittances have greater value but remain the minority on incidence of informal transfers: just 7.2% of households receive them but they represent 54% of all informal cash transfer income.
Informal transfers are regressive in general: the richest quintile receives 7.4 times the value of informal transfers compared to the poorest, representing 15.4% of incomes in the richest quintile compared to 11.7% in the poorest.
The incidence and effects of religious taxes and transfers depend on informal transfers and expenditures. The formal systems of state-regulated zakat funds and their local implementation have very low incidence, low transfer values and small impacts on redistribution.
There is a strong need to improve survey data to better identify both formal taxes and religious taxes and transfers.
Planning the future of social policy in Pakistan will require a clear understanding of the roles of public, informal and religious spheres in its funding and programme design and delivery.

Martin Evans and Mohammed Jehangir Khan

ODI

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Authors

Martin Evans

Mohammed Jehangir Khan