Tax cheats undermine foreign aid, US warns

Tax-dodging by the rich and lax tax enforcement systems are undermining foreign development aid to poor countries, US Secretary of State Hillary Clinton warned on Thursday.

"Many wealthy people in low-income countries avoid taxes by hiding their money off-shore -- an outflow that by some estimates comes to more than $1 trillion every year," Clinton said in an address to the OECD economic group.

"Corruption and poorly functioning tax systems put a strain on our partnerships with developing countries," she told a ministerial meeting of the 34-member Organisation for Economic Cooperation and Development.

"It is difficult to ask our taxpayers to spend money abroad while elites turn their backs on their own people. As donor countries make our assistance more effective, recipient countries must do their part as well."

She praised tax reforms in El Salvador, South Africa's efforts to fight corruption and Tanzania's crackdown on tax evasion, adding that encouraging tax reforms was a priority for the US government and its aid agency USAID.

"For example, with assistance from USAID, the Afghan government is expanding its work to pay police officers by cellphone," she said.

"This helps cut down on fraudulent payments and prevents corrupt officials from skimming from their workers? salaries."

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