Pakistanis traditionally give generously to charity, but most avoid paying taxes. Now, charities are feeling the pressure as donations drop amid record-setting 38% inflation. Low tax collection, meanwhile, hurts economic growth, forcing more to rely on charities for survival.
Every day, thousands of Pakistanis come to one of the Saylani Welfare Trust’s free food distribution centers, spread across the country, for a hot meal.
Security guard Muhammad Khursheed is one of them.
He said if the free food from Saylani wasn’t available, he would be spending all his salary on just food.
With an annual inflation rate of almost 38% eating through people’s incomes, Saylani, one of Pakistan’s largest charities, is seeing a rise in daily demand for its free food but a drop in donations.
Suhail Ahamed is a regional manager with the charity.
He said that up until a few months ago, he used to get 30,000 pieces of bread made. Now the number has reached almost 42,000. Donations have reduced but Saylani has not cut down its work, he added.
Charitable giving is a big part of Pakistani culture. In a 2021 Gallup Pakistan survey, around 76% of the respondents said they had given money to help someone in the year before.
At the same time, the proportion of Pakistanis who pay taxes has always remained dismally low.
The country’s tax to GDP ratio is below 10%, meaning the government receives less than 10% of the size of the economy in taxes.
What most countries need to sustain economic growth, according to experts, is a tax to GDP ratio of at least 15%.
Economic researcher Ali Khizar says in Pakistan, huge sectors such as agriculture, trade, retail and real estate use political muscle to keep their taxes low.
“These sacred cows have presence in the parliament. These sacred cows have really strong lobby in the military establishment, and they are very much entrenched in those who are making the decisions,” he said.
A complicated taxation system, ineffective implementation, and lack of trust in the government also cause many to evade taxes.
Broadening the tax net and increasing collection are among the conditions for reviving a stalled 2019 International Monetary Fund bailout deal. However, authorities will likely miss the target.
With Pakistan teetering on the brink of default, and millions getting pushed into poverty because of the rising cost of food and fuel, pressure on charities like Saylani is growing, says regional manager Ahmed.
He said they are very worried that their work may stop but will try their best to prevent that from happening.