Published on 4 Apr 2013 Sections , ,

UK aid to Pakistan should stop unless taxes rise, MPs say

Pakistan should collect taxes from its own rich elite before Britain hands over more aid money, a Commons committee has said.

Pakistan will become the largest recipient of UK aid next year, a controversial move given the backdrop of corruption, tax avoidance and political instability, MPs warned.

Although there is a “powerful case” for continuing aid to the nation, British taxpayers must not be left to foot the growing bill unless Pakistan’s wealthy are made to pay their fair share, the Commons International Development select committee said.

“Any increase in the UK’s official development assistance to Pakistan must be conditional on Pakistan increasing its tax collection and widening the tax base,” its report states.

Around 70 per cent of Pakistan’s MPs do not file a tax return

“We cannot expect the people in the UK to pay taxes to improve education and health in Pakistan if the Pakistan elite is not paying income tax.

“In the past, donor money has not been spent effectively in Pakistan for a variety of reasons. Corruption is rife in a social order based on patronage and kinship networks. Pakistan’s rich do not pay taxes and exhibit little interest in improving conditions and opportunities for Pakistan’s poor.”

Read more: Is Britain's foreign aid budget money well spent?

The government plans to increase its £267 million bilateral aid programme in Pakistan, which has one of the smallest tax bases in the world, for the financial year that ends today to £446 million in 2014/15.

During their inquiry MPs were told that while one in three people in Pakistan live on less than 30p a day around 70 per cent of the nation’s MPs do not file a tax return.

UK support

The committee indicated it wants Prime Minister David Cameron to push for action on corruption and tax evasion with Pakistan’s leadership and called for the government to use its influence within the International Monetary Fund (IMF) to press for urgent reform of the tax system.

It criticised the Department for International Development (Dfid) for failing to tackle corruption, frequent absences in the rule of law and low tax collection at the top of the agenda for its governance work in Pakistan.

The committee also said it was sceptical of the ‘scaling-up’ of Dfid’s maternal and new-born health programme, which is aimed at cutting the number of deaths among babies and new mothers by training community midwives, after it was given a “very poor review” by international assessors.

It also found that while the government believes educational programmes would help counter extremism the connection was “unclear”.

Committee chairman Sir Malcolm Bruce said: “There is a powerful case for maintaining the UK’s bilateral aid to Pakistan. Britain enjoys a close relationship and has long established ties with Pakistan which has real poverty and serious security problems.

“But the committee is concerned that not enough tax is raised in Pakistan to fully finance improvements in the quality of life for poor people.

“Pakistan’s rich must in turn demonstrate a clearer commitment to improving conditions and basic opportunities for all their fellow citizens by paying more in tax than they do under present arrangements.

A DfID spokesman said: “We have made it clear to government and opposition politicians in Pakistan that it is not sustainable for British taxpayers to fund development spend if Pakistan is not building up its own stable tax take.

“Following the election we will make available practical assistance to the incoming government to help deliver reform of the Pakistan tax system and work with the IMF, but tax and economic reform must take place.”