Inequality along with poverty has been a serious challenge for most of the developing countries. There have been several historical, political, social and economic dimensions of the inequalities. The present study provides a detailed analysis of various income dimensions of inequality at national and provincial level in Pakistan. This paper also provides a detailed analysis of the causes and consequences of these inequalities. The analysis shows that the gaps between haves and have-nots is widening. The distributional inequality has not been given much significance in Pakistan and the distributional policy measures like direct taxes have been weak. As a result, the direct tax to GDP ratio could not be increased over 10% in the country. The study finds that income inequalities have increased during 2001 to 2008. As in 2001-02, GINI coefficient was calculated as 0.27 and in 2007–08, it reached to 0.29. It has also been observed that inequality is highest in Sindh followed by Punjab, Khyber Paktunkawa (KPK) and Baluchistan provinces.