April 2, 2003	Wednesday	Muharram 29, 1424

ISLAMABAD, April 1: The government has decided to thoroughly “simplify” customs, sales tax and income tax rules in the next budget to encourage voluntary payment of taxes both by the corporate sector and the small traders, official sources told Dawn here on Tuesday.

They also said that tariffs will also be further rationalized in 2003-04 budget to help the business community. Both the World Bank and the IMF were reportedly asking for simplification of tax rules as well as further liberalization of tariffs in the country.

The government was also reviewing smuggling prone items so that the local industry could be adequately protected. In this regard the government has sought recommendations from the FPCCI and the chambers of other cities.

Sources said that budget planners have been instructed “not” to propose additional taxes in the budget unless there was an absolute necessity. The government wanted to broaden the tax net so that increased funds could be allocated for poverty alleviation, health and education.

The government, sources said, was expecting to get budgetary support in the form of “grants” from the World Bank, Japan, China, Saudi Arabia and the United Arab Emirates (UAE) in order to spend more on social sectors during 2003-04.

“We need to create more fiscal space in the new budget but it would not be necessary through imposition of new taxes”, said a senior official of the ministry of finance.

When contacted he said that reduction in the debt burden by the Paris Club will help the government to have additional $1.2 to $1.5 billion over the years which will be spent on improving the lot of a common man. “But we do need new resource mobilization”, he said adding that size of the new PSDP will considerably increased against Rs140 billion of the current financial year.

Also sources said that the federal government has instructed the authorities of the State Bank of Pakistan to “introduce new products” to make up its losses being experienced in the wake of reduced treasury bills rates and interest rates.

Sources said that the central bank has informed the ministry of finance that the bank was facing a loss of about Rs20 billion during the current financial year due to reduction in the treasury bills rates and the interest rates.

Earlier, the profit of the State Bank, sources said, was estimated to be Rs23 billion but now it was facing a deficit of Rs20 billion.

“The finance ministry has also asked the authorities of the central bank to cut its expenses and improve its overall structure to make the SBP profitable”, another official said.

He said the finance ministry did no want to interfere in the monetary policies of the central bank. However, the ministry wanted that various policies should be carved in such a manner that the central bank did not face losses. “The SBP will have to enhance its revenues specially after reduction in T-bills rates and interest rates”, he added.

Another issue which was being given lot of importance was the reduction of foreign debt for which a new strategy will be announced in the new budget.

The budget planners, sources said, believed that high and growing debt burden was a major cause of a sharp slowdown in country’s economic growth and low investors confidence and that satisfactory resolution of the debt problem will take both time an aggressive policy action, involving painful choices.

According to a World Bank report, Pakistan remains a heavily indebted country despite the Paris Club rescheduling of $12.5 billion debt in 2001. It said that Pakistan’s external public and publicly guaranteed debt stood at $31.4 billion, or 53 per cent of GDP at the end of June 2001, and is expected to rise to $31.7 billion by June 2005. Debt service as share of foreign earnings is estimated to fall as a result of the debt rescheduling from 29 per cent in 2001 to under 22 per cent in 2005. The present value of long-term public and publicly guaranteed external debt to exports fell by 30 percentage points to around 230 per cent and will reach a level close to 210 per cent in 2003-04.