The Department for International Development plans to increase its aid to Pakistan from £267m in 2012/13 to £446m by 2014/15, making the country the single biggest recipient of UK bilateral aid.
But, in a report on this spending, the House of Commons’ international development select committee said it could not support the planned increase unless there was ‘clear evidence’ Pakistan was doing more to ‘improve the livelihood’ of its own people.
The report noted that for the past decade, tax revenues as a percentage of gross domestic product in the country was just 10%, compared with 14% to 15% in countries with similar per capita incomes. It is estimated that only around 0.57% of Pakistanis – 768,000 people – paid income tax last year.
Sir Malcolm Bruce, chair of the committee, 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.
‘Many people in Pakistan who live below the poverty line gain from the projects supported by the UK Department for International Development’s valuable programmes in education, health and governance.
“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. In particular, we cannot expect people in the UK to pay taxes to improve education and health in Pakistan if the Pakistani elite does not pay meaningful amounts of income tax.’
For the past decade, tax raised as a percentage of gross domestic product in the country was just 10%, compared with 14% to 15% in countries with similar per capita incomes. It is estimated that only around 0.57% of Pakistanis – only 768,000 people – paid income tax last year.
The UK should set clear terms under which it may increase or reduce future aid funding and should raise the issues of corruption and tax evasion at the ‘highest levels’, the report said.
It was also urged to work with other donor countries to encourage joint and concerted efforts to address these issues, as well as pressuring the International Monetary Fund to press for reform of Pakistan’s tax system.
Pakistan will hold parliamentary elections on May 11 and Bruce stressed how important it would be for its new government to ‘own and implement an effective anti-corruption strategy’.
‘DFID must likewise set measurable targets against which to measure and confirm positive impacts arising from effective investment in anti-corruption measures,’ he added.
‘How Pakistan chooses to reform is a matter for Pakistan, but it’s clear there must be substantial reform grounded in lasting institutional change sufficient to transform the country’s services and social indicators.’
Responding to the report, a spokesman for DFID agreed there was an ‘urgent need’ for the new Pakistani government to deliver tax reform. ‘That reform must start from the top down, with elected politicians and the wealthiest in Pakistan showing a commitment to reform by submitting tax returns and paying tax due,’ he said. ‘The UK government is clear that UK development assistance in Pakistan is predicated on a commitment to economic and tax reform and to helping lift the poorest out of poverty.’
Ivan Lewis, shadow international development secretary for the UK’s Labour opposition, said UK taxpayers were right to expect Pakistan’s government to take all necessary steps to collect tax revenues needed to end poverty.
‘It is also true that we will only be able to achieve our aim to end aid dependency globally by 2030, if there is a concerted effort to prevent the tax dodging by some multinational companies which the evidence shows denies developing countries vast amounts of revenue,’ he added.
‘That is why David Cameron must use the UK's chairmanship of the Group of Eight to replace his tough rhetoric on tax with effective global action.’
