This paper analyses the incidence of chronic and transitory poverty in Pakistan in both urban and rural settings. The findings are that rural poverty is severer and also chronic as compared to transitory poverty in urban centres. The main factor behind this phenomenon is the homogeneity of the rural set-up which affects the employment and wage levels adversely. On the other hand, in the urban areas, heterogeneous population with diverse occupations provides better employment and wage opportunities. Furthermore, illiteracy, landlessness, lack of ownership of dwellings, and dependency on sharecropping are the main factors accentuating rural poverty. The paper also analyses the zakat element of the safety net strategy. Contrary to the prevailing perception that zakat does not reach the actually poor, it turns out that in fact zakat has become an “identification mark” for the chronic poor. The findings of this paper have significant implications for the poverty reduction strategy of the Government of Pakistan.