* Top income tax rate to rise to 20 pct
* Palestinian Authority deep in red last year
* Foreign aid well below target
RAMALLAH, West Bank, Feb 14 (Reuters) - The
Palestinian Authority approved income tax rises on Tuesday,
pushing the top rate to 20 percent, as it seeks to tackle a debt
crisis aggravated by lower-than-expected foreign aid revenues
including the freezing of U.S. aid last year.
The top tax rate will rise from 15 percent to 20 percent, a
cabinet statement said, effective from this year. Prime Minister
Salam Fayyad was last month forced to back down on doubling the
rate to 30 percent after a public outcry.
Fayyad's Western-backed government has drafted a $3.5
billion budget for 2012, which also includes spending cuts and
corporate tax rises, as it aims to bring the deficit, which
nearly tripled to $1.1 billion or around 15 percent of GDP last
year, down to $750 million.
Fayyad told reporters on Monday night that the private
sector had agreed in talks with the government to a two-year
delay on the implementation of tax breaks for investors, which
are expected to increase government revenues by $60 million a
year for those two years.
The Palestinian Authority - which exercises
limited self-rule in the Israeli-occupied West Bank - depends on
financial support from the United States, the European Union and
Arab states to pay the salaries of public workers, including
teachers and security personnel.
However, the United States abruptly cut off funding last
year after President Mahmoud Abbas made a unilateral bid for
recognition of Palestinian statehood at the United Nations.
The Palestinians had planned for foreign aid of about $1.1
billion in 2011, but Fayyad said it received just under $750
million.
The Authority's growing financial difficulties coincide with
a period of political uncertainty for the Palestinians as peace
talks with Israel broke down last month and there is no sign
they will be revived soon.
The government's plans to cut the deficit also call for more
companies and organisations to pay taxes on their operations and
possible early retirement for some of the Palestinian
Authority's 153,000 public sector workers.
Officials say more than $150 million of U.S. aid is frozen.
The U.N. statehood initiative has ground to a halt, with the
Palestinians failing to get enough backing to secure a vote in
the Security Council.
Fayyad, appointed by Abbas in 2007, is credited with
revitalising the economy but analysts expect economic growth
almost halved to just below 5 percent last year and forecast 4
percent growth this year.
The Islamist group Hamas, which controls Gaza, accuses
Fayyad of helping Israel to blockade its coastal territory and
has never recognised him.
(Reporting by Ali Sawafta, writing by Sami Aboudi; Editing by
Susan Fenton)
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