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Pakistan to press on with tax reforms after floods

Pakistan Foreign Minister S-M-QureshiBRUSSELS: Pakistan will press on with tax reforms which the United States considers vital for financing relief efforts after devastating floods, Foreign Minister Shah Mehmood Qureshi said on Friday.

US Secretary of State Hillary Clinton said this week it was absolutely unacceptable that Pakistan’s wealthy were not paying more for flood relief and urged Islamabad to include tax improvements in democratic and economic reforms.

Speaking in Brussels after a conference on Pakistan, Qureshi said his government recognised the need to broaden the country’s tax base and was building consensus for the issue.

“Regardless of what Hillary Clinton says, we are going to do what is right for Pakistan and I think the tax system has to be more equitable,” he told reporters after meeting officials from the European Union, the United States and other countries.

“We have to correct that,” he said. The floods caused $9.5 billion in damage to property, crops and infrastructure, according to the Asian Development Bank and World Bank. Finance ministry officials say the government may face total recovery costs of $30 billion.

But US officials have said Pakistan’s economic reforms, linked to the release of the next tranche of an $11 billion International Monetary Fund bailout programme, are not moving fast enough.

Adnan Mazarei, the IMF’s mission chief for Pakistan, has said the country’s taxation system is “very unfair and inequitable” because the rich often avoid paying taxes.

EU foreign policy chief Catherine Ashton reiterated the need for more change in Pakistan but said she trusted Islamabad was taking the concerns seriously.

“It’s been part and parcel underpinning the dialogue,” she said after Friday’s meeting.

The United States has also voiced concern that Pakistan’s fight against militants inside its borders, which Washington sees as essential in the wider US-led war against the Taliban in neighbouring Afghanistan, may suffer as resources and official attention are diverted by the flood disaster.

“Pakistan is under extraordinary pressures, internal and external,” Richard Holbrooke, the US envoy to Afghanistan and Pakistan, told reporters in Brussels.

But he added: “The US government is under tremendous pressure, the EU is under budget pressure, we have our own infrastructure problems … We will help Pakistan but we cannot do everything in the reconstruction phase.”

Pakistan’s tax-to-GDP ratio is about 10 per cent, one of the lowest in the world.

The floods, which began in July, left more than 10 million people homeless in Pakistan. They devastated the country’s economy, already fragile before the disaster. -Reuters

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