Aid agencies should help poor collect tax, say MPs

Britain’s international aid effort should focus more on helping developing countries to collect their own taxes properly, MPs said yesterday.

The Commons International Development Committee said a reliable flow of tax revenues offered countries a far better route out of poverty than reliance on foreign aid.

It urged the Department for International Development to support revenue authorities in developing nations to improve the collection of income tax, VAT and local property taxes.

Committee chairman Sir Malcolm Bruce said: “The aim of development work is to enable developing countries to escape from over-reliance on aid.

“Supporting revenue authorities represents excellent value for money for the countries concerned and for UK taxpayers.”

The committee said it was essential that the governing “elites” within developing countries paid the correct amounts in personal taxation. “Tax is an issue of fundamental importance for development,” it said. “If developing countries are to escape from aid dependency, and poverty, it is imperative that their revenue authorities are able to collect taxes effectively.”

The report also expressed concern that recent changes to the controlled foreign companies rules – which no longer apply to UK-owned companies operating exclusively outside the UK – could make it easier for those firms to use tax havens.

The move has dismayed aid agencies, with ActionAid estimating that it could cost developing countries up to £4 billion in lost tax revenues.