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. This 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.