June 18, 2012 / 2:41 PM / 7 years ago

Sudan to tax more, cut subsidies to plug deficit

* Sudan scrambling to plug deficit of $2.4 billion

* Says will slash govt jobs, raise taxes to improve finances

KHARTOUM, June 18 (Reuters) - Sudan will gradually abolish fuel subsidies, cull the number of civil servants on its payroll, and raise taxes on consumer goods, banks and imports to plug its budget deficit, President Omar Hassan al-Bashir said on Monday.

The measures are an attempt to tackle a deficit - put at $2.4 billion by Finance Minister Ali Mahmoud in May - that opened up after Khartoum lost three-quarters of its oil, the lifeline of the economy, when South Sudan became independent a year ago.

A dispute with Juba over transit fees and recent border fighting between the two former civil war foes has only added to Khartoum’s budget woes.

“We will overhaul the government ... cut down the number of ministries ... and shrink regional governments by between 45 and 50 percent,” Bashir told parliament.

Advisor jobs and allowances for senior officials would be cut altogether, he added.

Fuel subsides, which diplomats say cost the treasury at least $1 billion annually, would be gradually phased out, he said, while value added tax and taxes on imports and banking profits would be increased.

The decision to target the banking sector comes after taxes on telecoms firms were raised in December.

Bashir said the government would soften the blow of higher fuel prices for citizens by exempting basic food items such as wheat, flour and sugar from the new import tax.

He gave no details but said Finance Minister Mahmoud would brief parliament on Wednesday.

Annual inflation hit 30 percent in May, double the level it stood at in June 2011, causing pain for ordinary people who are already tired of years of poverty, ethnic conflicts and U.S. trade sanctions.

The Arab African countries avoided an “Arab spring”, but anger is rising in Sudan over spiralling food prices as the cash-strapped government struggles to fund imports.

Around 200 students staged an anti-government protest on Sunday.

The International Monetary Fund urged Sudan to enact emergency measures to overcome the “daunting” challenges it faces three weeks ago.

Sudan effectively devalued its currency in May to try to attract more remittances from Sudanese living abroad and to try to boost gold and agricultural exports. But experts say it will take time for the measure to have an impact.

Khartoum had hoped to plug its deficit with the help of export fees from landlocked South Sudan which needs to pump its oil through northern pipelines and the Red Sea port of Port Sudan.

But the new nation in January shut down its entire oil output of 350,000 barrels a day to stop Sudan from seizing oil for what the latter called unpaid export fees. Both sides have been unable to agree on a fee. (Reporting by Khalid Abdelaziz; Writing by Ulf Laessing; Editing by Andrew Osborn)

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