Pakistan is about to become the largest recipient of UK aid, reports accountants Northampton Harris & Co.
A team of HMRC tax experts are set to help the Pakistani government increase the amount of tax it collects.
Pakistan, which has one of the lowest tax collection rates in the world and is the largest recipient of British aid, is due to receive £412m this financial year, leaping by £34m to £446m in 2014/15. Around £1.5bn is sent back to the country each year from relatives living in the UK.
Justine Greening, the international development secretary, recently announced that the government would be setting up a ‘Tax Capability Building Unit within HMRC’.
She said it will ‘provide us with an in-house team of tax experts dedicated to working in developing countries with DFID teams’.
‘As we have seen in Afghanistan, the returns on this sort of investment can be enormous. Our first joint DFID/HMRC country projects will start this April and I expect that once we’ve built the unit up, by April 2017 we will have teams working in six or seven more countries.’
Greening is adamant that helping the troubled Asian country to increase its tax take could reap dividends for the UK as aid payments could begin to be reduced.
David Gauke, Exchequer secretary to the Treasury said: ‘The government’s priorities on tax and development are focused on ensuring that developing countries can benefit from international advances in tax transparency and helping developing countries to establish and maintain effective tax systems of their own. We are supporting tax projects in developing countries, from Afghanistan to Zambia.
‘For example, through the twinning of HMRC and the Ethiopian Revenue & Customs Administration, the UK has helped to strengthen the accountability, political neutrality, and transparency of revenue collection in Ethiopia. From 2002 to 2011, tax collected in Ethiopia increased by 700%. The additional support announced will help developing countries deal with transfer pricing disputes.’
According to the latest World Bank figures, Pakistan’s tax take as a percentage of its GDP was just 10% in 2010. However, this was higher than the US at 9.45%. The UK’s figure for the same period was 26.7%. In 2011, Pakistani GDP was £1,815 per capita.
Greening last met Pakistani politicians in her tour of the country in January, where she raised the issue of taxes.
Just two thirds of Pakistani politicians are said to pay tax. A recent report published by the Centre for Investigative Reporting in Pakistan found that only 20 of 55 cabinet ministers had filed returns, while 49 out of 104 senators paid income tax.