Some British lawmakers have threatened to withhold or even cut off financial aid to Pakistan unless Islamabad authorities crack down on widespread tax evasion by wealthy Pakistani elites.
MPs from the Commons International Development select committee warned that Pakistan is already on track to become the largest foreign recipient of UK aid by next year, despite the deep entrenchment of political corruption in the country.
Indeed, the British government is planning to increase its bilateral aid package to Pakistan to £446 million ($675 million) in 2014-15 from £267 million in the current fiscal year.
But the British taxpayers should not pick up such a huge tab, the committee stated, unless Pakistani authorities enforce tax collection and rule of law to root out endemic corruption.
“There is a powerful case for maintaining the UK's bilateral aid to Pakistan,” the committee conceded. “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…in education, health and governance.
However, the committee added, "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.”
The committee thus concluded: "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.”
The MPs have urged British Prime Minister David Cameron to pressure the Pakistanis to get their financial house in order, particularly as the country plans to hold national elections in May.
But getting Pakistan’s power brokers to cough up tax payments (and express any concern for the country’s masses of poor) is an extremely tall order.
According to UK media, 69 percent of Pakistan’s National Assembly members and 60 percent of Pakistan’s senators do not even bother to file a tax return. Moreover, only about 768,000 people -- about 0.57 percent of the population of 175 million -- paid any income tax last year.
And even fewer -- only 270,000 -- paid taxes in each of the past three years.
As a result, according to The Economist, Pakistan’s tax revenue accounts for only 9.1 percent of GDP, one of the lowest ratios in the world and an indication that the tax base has almost completely collapsed.
On the other end of the wealth spectrum, one in three people in Pakistan subsists on less than 30 pence (45 cents) per day.
In addition, one in every 11 Pakistani children die before their fifth birthday, and 50 percent of all adults (including two-thirds of all women) are illiterate.
But Wajid Shamsul Hasan, the Pakistan High Commissioner to the UK, told the BBC that Islamabad has been taking steps to increase its tax-collection activities, having doubled its annual intake to more than $20 billion since the beginning of the new century. Hasan also declared that lawmakers who evade taxes are now prohibited from running for public office.
But he also noted that fighting terrorism has been such an all-consuming effort in Pakistan that tax collection has been sidelined. "I would say that [the British government] should be paying, knowing well what sort of problems we have [been] put into by this 30-year-long war against terrorism in the region,” the High Commissioner stated.
"First, when the Soviet Union occupied Afghanistan, we had to face the main brunt of the war, and now we have to continue to face the main brunt. We have spent $67 billion since 2011 in this war against terror; our infrastructure has been destroyed, [and] our education has been destroyed."
Palash has worked as a business journalist for 21 years in New York.