Pakistan taxes own citizens to raise money for flood relief

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 300,000 rupees (USD 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 per cent to two per cent.

"By these measures we will collect 40 billion rupees (USD 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 300 rupees income tax would have to pay 330 rupees 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 USD 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 USD 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 USD two billion -- about USD 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.