Welcome to another Friday, chief!

In today’s edition — Pakistan’s GST is doing more harm than good, says the World Bank in a report released last week, as the tax hits the poor the most, in contrast to its counterpart in India, which has helped reduce poverty. Meanwhile, the Chinese embassy warns its bachelors in Bangladesh: Stop buying brides because instead of walking down the aisle, you could be walking into a trap.

Pakistan’s GST: Grim, Steep, Tragic

Vishwas Ved

To say that Pakistan is facing an unprecedented economic crisis is almost passé at this point. But the truth remains that its growth has slowed significantly and inflation is soaring. The poverty rate has increased from 40.2% in FY23 from 40.5% in FY24, and most people in the country do not even get basic food, healthcare, and education.

A World Bank (WB) report, ‘The Effects of Taxes and Transfers on Inequality and Poverty in Pakistan’, released last week, has pinned the blame on the country’s tax system — General Sales Tax (GST) — which is doing only one thing: burdening the poorest families.

On paper, their GST appears to be egalitarian because everyone pays the same rate on everything — from groceries and fuel to clothes and utilities. But the report calls it regressive. 

The World Bank document notes that Pakistan’s GST eats up more than 7% of an average household’s pre-tax spending. The pain is greater for poorer families as this percentage is higher relative to their income, while the richer households barely feel a pinch because they spend a smaller share of their income on GST.

This system is unfair and harmful, the report observes, adding that poor families are paying more in indirect taxes than they get back from government aid programmes, such as the Benazir Income Support Programme, or BISP. 

The World Bank praises BISP for its right intentions, but it is not able to reduce inequality because GST, due to its inherent flaws, is widening the gap between rich and poor.

India vs Pakistan

Pakistan’s handling of its GST offers a contrasting example for the region, especially because India also implemented a GST (Goods and Services Tax) in July 2017. 

While both countries rely on their GSTs for revenue, they approach it very differently. India, which became the world’s fourth-largest economy this week after overtaking Japan, provides a contrasting model.

In India, different goods and services attract different rates. For example, essential items are taxed at zero or very low rates, whereas luxury items carry higher GST rates. This system helps poor families by reducing their tax burden. 

India, projected next to be a $30-trillion economy by 2047 according to Niti Aayog, also gets a sizable chunk of its revenue through direct taxes such as income tax and corporate tax. 

That means it has more money for welfare schemes, such as PM-KISAN, providing direct income support to farmers, and Ayushman Bharat, offering health insurance to millions of poor people.

This is why over the past decade India has significantly reduced poverty, according to another WB report in April this year. Extreme poverty fell from 16.2% in 2011-12 to 2.3% in 2022-23, lifting 171 million people above this line. 

In contrast, as the report on Pakistan points out, the country focuses more on its indirect taxes that are easier to collect, but they place more burden on the poor. At the same time, its direct tax collection is limited, primarily because of political resistance and weaker enforcement. 

This restricts Pakistan from supporting poor families through public spending. As a result, Pakistan, the report adds, has the lowest inequality reduction among a sample of five countries. The other four are Sri Lanka, Türkiye, Brazil, and Mexico.

Breaking the Cycle

The World Bank report has suggested that Pakistan urgently reform its tax system to make it fairer and more effective. This includes broadening the tax base by improving direct tax collection, especially from HNIs and large businesses. 

At the same time, it has suggested that the country reduce its dependence on GST and find a way to exempt or reduce taxes on essential goods.

Better targeting of social spending is also essential, the report says, recommending that the country invest in early education and healthcare to break the cycle of poverty.

Warning & Opportunity for the Region

Pakistan’s situation serves as a warning to the entire South Asian region: tax policy matters a great deal. When tax systems disproportionately burden the poor, they deepen poverty instead of alleviating it.

India is not perfect, but its successful implementation of a new tax regime shows that a more nuanced GST and a robust social welfare system can help reduce inequality while still raising revenue. Pakistan could very well learn a lesson or two from the way India has handled its GST.

Ultimately, a fair taxation system coupled with an effective social welfare programme is important for creating resilient economies — in Pakistan, India, and beyond.

China to Lonely Hearts: Don’t Buy Wives

In a stern advisory, the Chinese Embassy in Bangladesh has warned its men: love may be blind, but keep your eyes open.

Apparently, some Chinese bachelors have been browsing for brides across borders — on TikTok, no less — and adding them to their shopping cart, thinking they’ve hit the jackpot, when in reality, they’ve walked into a trafficking scam.

According to a report in the Global Times, the embassy didn’t mince words at all, ordering citizens not to treat Bangladesh like a bride mart because buying a foreign wife is illegal under Chinese law.

The warning comes as China grapples with a side effect of its past: a gender imbalance thanks to years of one-child policy and son preference. 

As a result, about 30 million men, pejoratively called ‘leftover men’, are still single and, unfortunately, a few have started putting a price tag on romance. This has led to a rising demand for foreign brides and a growing number of marriage scams.

The embassy said Chinese people must reject the idea of buying a foreign wife and think seriously before marrying abroad. Criminal gangs were said to be behind these trafficking operations. 

It added that many such marriages happen through illegal or abusive channels, which can result in serious legal trouble.

A report by The Daily Star recently revealed cases of Bangladeshi women being sold in China under the false promise of marriage. 

The Chinese embassy stressed that those involved in such illegal marriages could face punishment in both China and Bangladesh. 

₹2.69 Trillion

The RBI’s central board has approved this week a record ₹2.69 trillion surplus transfer to the government for the financial year 2024–25, while expanding the range of the Contingent Risk Buffer (CRB) from 7.5% to 4.5% of the central bank’s balance sheet. The CRB had previously been increased to 6% for FY23 and to 6.5% for FY24.

—ChatGPT Plus Free in UAE. The United Arab Emirates (UAE) has become the first country in the world to offer free access to ChatGPT Plus, the premium version of OpenAI’s popular AI chatbot, to its entire population. This initiative is part of a major strategic partnership between OpenAI and the UAE government. The collaboration also includes the development of a large-scale AI infrastructure project in Abu Dhabi called Stargate UAE, which aims to become a central hub for artificial intelligence in the region. 

—WhatsApp Now Available for iPad. Meta’s instant messaging platform, WhatsApp, now has a dedicated app for Apple iPads. The company has announced that WhatsApp for iPadOS is officially available for download on the Apple App Store for iPads, featuring an interface optimised for the larger display and support for iPad-specific accessories like the Apple Magic Keyboard and Apple Pencil. 

—Musk exits DOGE.  Tesla chief Elon Musk is stepping down from his role as head of the Department of Government Efficiency (DOGE), a position he held in US President Donald Trump’s administration. Musk made the announcement on X. “As my scheduled time as a Special Government Employee comes to an end, I would like to thank President @realDonaldTrump for the opportunity to reduce wasteful spending,” Musk wrote. “The DOGE mission will only strengthen over time as it becomes a way of life throughout the government.”

—US court blocks Trump Tariffs.  A federal court in the US has blocked President Donald Trump from imposing 'sweeping' tariffs on imports citing an emergency-powers law. A three-judge panel at the New York-based US Court of International Trade issued the ruling. The development comes after several lawsuits were filed against Trump, arguing that he has exceeded his authority.The ruling serves as a setback to Trump, who has repeatedly mentioned that the tariffs would compel manufacturers to bring factory jobs back to the US, arguing that the move would generate enough revenue to reduce the federal budget deficit..

ICYMI | Finally, Credit Where It’s Due

Missed last week's update? The Supreme Court just gave businesses a tax-time treat, meaning no more dipping into cash flow to make pre-deposits for GST appeals; use input tax credit instead. Meanwhile in Bhopal, a ₹1 GST overcharge on a bottle of water turned into an ₹8,000 headache.

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