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US Wants Pakistan's Rich To Pay More Tax

Tuesday, March 2, 2010

US Secretary of State, Hillary Clinton, wants Pakistan to review the tax treatment of the country’s most affluent taxpayers to ensure that they are fairly contributing to government coffers. Currently Pakistan receives billions of dollars in aid from the US, the World Bank and the International Monetary Fund (IMF).

In testimony before the US Senate Foreign Relations Committee Clinton said that “well-off Pakistani’s do not pay their fair share for the services that are needed.”

The US is reviewing aid provided to the country since 2001. According to a report tabled in the US congress, Pakistan has received nearly USD18bn in aid since September 2001, USD11.5bn of which has been channelled into military assistance as part of the fight against terrorism. The remainder has been channelled into civil development aid, with the aim of increasing prosperity and reducing Pakistan's dependence on outside support.

In her testimony, Clinton noted that Pakistan’s tax-to-GDP ratio is one of the lowest in the world, and its tax system allows many high earners and wealthy expatriates to avoid paying taxes. The US, the IMF and the World Bank are to work with Pakistan to expand the tax base, starting with taxes on higher earners.

Tax revenues from the corporate sector are likely to come under scrutiny as part of the review also. According to an analysis of the Pakistani tax system by Dr Tarique Niazi of University of Wisconsin-Eau Claire, as reported by the Asia Times Online, the contribution by the country’s top corporations is also comparatively meagre; 1,193 reported around USD400 in taxable income per month last year, 768 firms paid around USD100 per month, while 2,341 claimed to be in the red.

The Obama administration’s latest annual budget has allocated a further USD3bn in aid to Pakistan, USD1.4bn of which is for civilian assistance.