Pakistan taxes citizens to raise flood relief money

Pakistan increased income tax on the relatively well-off on Wednesday to raise hundreds of millions of dollars for the victims of the country's devastating floods.

The cabinet agreed to impose what it called a "Flood Relief Surcharge", raising income tax payments by 10 per cent for the next six months for Pakistanis earning Rs300,000 ($3,500) or more a year.

A special excise duty on non-essential and "luxury items", both imported and local, will also go up from one percent to two per cent.

"By these measures we will collect Rs40 billion ($470 million) from well off people," finance minister Abdul Hafeez Shaikh told a press conference after the cabinet meeting in Islamabad.

"The tax will be payable from January to next six months after parliamentary approval," he said, adding that it was a one-off measure.

As an example, he said that someone paying Rs300 income tax would have to pay Rs330 for six months.

Shaikh said that the international community was donating to Pakistani flood victims, but better-off Pakistanis should also make a contribution.

US Secretary of State Hillary Clinton last month said Pakistan's wealthy needed to dig into their own pockets to match global efforts to help it recover from $9.7 billion of flood damages.

"It's absolutely unacceptable for those with means in Pakistan not to be doing their fair share to help their own people while taxpayers in Europe, the United States and other contributing countries are all chipping in," Clinton said in Brussels.

The World Bank and Asian Development Bank (ADN) said they estimated damages from the floods at $9.7 billion, almost double the amount caused by Pakistan's 2005 earthquake.

Unprecedented monsoon rains triggered catastrophic flooding across Pakistan in July and August, ravaging an area roughly the size of England and affecting 21 million people in the poverty-stricken country's worst natural disaster.

Only 40 per cent of a record UN appeal for nearly $2 billion -- about $775 million -- has been received to date, the latest UN statistics show.

Shaikh said that as well as the flood tax, the cabinet also approved reforms in the general sales tax.

A uniform 15 per cent tax is being proposed to replace current rates ranging from 17 to 25 per cent, he said, adding that the new tax system would be automated and its coverage expanded.