In a speech at a press conference in Islamabad, David Cameron told Pakistan’s elite that:
Many of your richest people are getting away without paying much tax at all – and that’s not fair.
When considering Cameron’s words, let’s remember that the UK facilitates the very same actions through its sovereignty over 13 of the 24 biggest tax havens in the world, including Jersey, Guernsey, the Cayman Islands and the City of London.
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First, it is important to note that the vast majority of people considered “rich” in the UK do pay their taxes. According to Her Majesty’s Revenue and Customs (HMRC), there are roughly 327,000 people who earn more than £150,000 per year – the rate at which the 50p tax is introduced. HMRC predicts that by the end of this fiscal year, the richest 327,000 will be paying 26.7 per cent of the total tax collected in the country.
Nevertheless, a request filed by the London Evening Standard under the Freedom of Information Act in 2007 revealed that in 2004-2005 only 65 of the roughly 400 UK-based individuals who earn £10m per year or more actually paid income tax. The failure was estimated to have lost HMRC up to £2bn in revenues.
The related issue of companies in the UK not paying tax has been brought to mainstream attention by the recent UK Uncut protests – fingering Vodafone, Topshop and Boots, among others, as having allegedly “dodged” paying billions.
The chairman of Pakistan’s Federal Bureau of Revenue (FBR), Salman Siddiqui, recently issued notices to the wealthiest 700,000 of Pakistan’s 2.3 million rich to give up withheld taxes. Although the number of non-payers is far higher than estimates in the UK, Cameron would be better advised to clean up the UK’s own mess first before preaching to other countries.
Surprisingly, Cameron did not make the distinction between tax evasion and tax avoidance in his speech. Whereas the latter is considered legal – when taxes are not paid, using the help of loopholes – the former is considered illegal: non-payment of taxes that breaks the law.
A committee was set up to investigate the costs and benefits of having a General Anti-Avoidance Rule for the UK earlier this year. It has until 31 October 2011 to come to a conclusion.