The Economic Survey 2003-04 and the budget for fiscal year 2004-05 surely presented a rosy picture of the country's economy. A substantial degree of macro-economic stability has been achieved.

Though the country's economy is not alien to the GDP growth rate of around 6 per cent, achieving it after the dismal performance of the preceding years is gratifying indeed.

Per capita income is stated to have gone up from $526 of last year to $652 this year. Tax collection is said to have exceeded the target fixed for July-April period. Population growth has declined to less than 2 per cent.

Foreign exchange reserves stand at $12.5 billion. The budget proposals for the coming year embody a number of positive measures. Multiple rates in Sales Tax have been abolished.

Now all taxable goods will be charged at an uniform rate of 15 per cent. Other beneficial measures include zero-rating on imports and supply of plant and machinery to encourage capital investment, exemption on import of agricultural equipment, tractors etc, raising of the threshold of exemption on Small and Medium taxable income limit from Rs80,000 to Rs100,000 is a step in the right direction in view of rising inflation.

Rebate of 50 per cent given to senior citizens, which was hitherto restricted to the income of Rs200,000, has now been raised to Rs300,000. An assessee wanting to file an appeal against disputed tax demand was required to pay at least 15 per cent of the demand.

This oppressive precondition has been done away with. Withholding tax on import of machinery has been withdrawn. Rs202 billion have been allocated for the Public Sector Development Programme (PSDP) which is highly laudable.

It is expected to "unleash massive economic activity in the country" and create one million new jobs. The expectations appear to be highly optimistic though. Salaries of the government employees have been raised by 15 per cent and pension by 8-16 per cent.

All these favourable developments and measures cannot make one ignore the flip side of our economy. One claim which squarely falls in the domain of incredulity pertains to the reduction in poverty by 4.2 per cent. Let us examine this claim in some detail.

Most of the poor of this country eke a living from the agricultural sector. Its performance during the year has been dismal. It has shown a sharp decline from a growth rate of 4.1 per cent of last year to 2.6 per cent this year.

The growth in the manufacturing sector largely bypasses the rural population and its benefits remain confined to highly skilled and well-paid employees, who were above the poverty line to begin with.

There is evidence that income inequality between the rich and the poor is increasing. Thanks to our emphasis on macro-economic management, greater reliance on indirect taxes and meagre PSDP allocations, the poor are becoming poorer and the rich, richer.

The claim of the reduction in poverty was based, according to the Finance Minister, on a small survey sample which consisted of 5000 households. The methodology, the period taken for it and the size of the sample render its comparison with Pakistan Integrated Household Survey conducted in the year 2000 technically unsound.

Another explanation could be that as the rich have become richer exponentially they have pulled the figure of poverty downwards, giving the illusion of such a substantial reduction.

This will only confirm a cynic's portrayal of the methodology adopted by statisticians. If you have your one foot in a freezer and the other in a burner, a statistician would say that you are perfectly comfortable.

The revenue target for the next fiscal year fixed at Rs580 billion is ambitious indeed, which is 13.72 per cent higher than the target for the outgoing year.

The negative impact of the wide-ranging duty and tax concessions has been estimated at Rs7.5 billion, which makes the task of CBR even more onerous. An herculean effort would be needed to achieve such a steep height.

According to a recent newspaper story, the CBR is struggling to cover up the shortage of Rs73 billion in the remaining 2 weeks of the outgoing financial year, and it may not be able to succeed.

Going by the figure of collection so far, the CBR has collected Rs19 billion per fortnight during the current year. Collection of Rs73 billion in the last fortnight of the year does not appear achievable.

Never in living memory the revenue targets, discounting the revised targets, were achieved. This year too, one fears, will conform to the historical trend of failed budgetary targets.

In this background, the hope of the Finance Minister for achieving an ambitious revenue target for the next financial year due to a strong growth momentum and improved efficiency in tax administration may prove illusory.

Let us take a brief look at revenue estimates for the next financial year and compare them with the targets of the year which is about to end. The greatest reliance is once again placed on sales tax.

With its high rate, it hits the poor badly. The three indirect taxes account for an estimated collection of Rs398.1 billion or 68.63 per cent of the total estimated collection of federal taxes.

The contribution of direct taxes at Rs181.9 billion contains a substantial portion of indirect taxation in the shape of 'presumptive tax regime', estimated in high 30s percentage points.

This will push up the contribution of indirect taxation to a calamitous level, for the poor that is. The budget proposals have curtailed the operation of withholding taxes by reducing their rates in some cases and eliminating them altogether in some other.

But the range of the presumptive tax regime has not been reduced. Lest it may give rise to some false hopes, it is pertinent to note here that only the withholding tax at the rate of 10 per cent on income from Bahbood Saving Certificates for the senior citizens has been withdrawn but not the taxation.

Now it will be part of the universal income and taxed accordingly. Under the circumstances realization of our cherished goals of poverty alleviation and distributive justice would remain a pipe dream.

Exemption of income from capital tax has been extended up to June 2007. It is a step in the right direction for encouraging savings and giving a boost to the capital market.

But the benefit given by one hand has been retracted by the other with the proposed charge of capital value tax (CVT) at the rate of 0.1 per cent of the purchase value of share (not the par value).

Translated into money terms, for a lot of 500 shares, each costing Rs350, a buyer will pay Rs175 as CVT. Millions of shares are traded every day. One shudders to imagine the impact of this levy.

It will jolt the capital market more severely than the capital gain tax. The capital gain is calculated after accounting the losses, which are bound to occur in a dicey business like trading in shares.

But the CVT only takes into account the value of turnover, irrespective of the fact whether one gains or loses in the transaction. Turnover, it seems, is the favourite mode of calculation of tax liability with our economic planners, its examples being that aberration called Turnover Tax (which has no parallel in the annals of income tax), sales tax and now CVT.

No wonder that stocks crashed on the first day of trading after the announcement of the budget. The volume of trade fell from 304.8 million shares to only 196 million.

Privatisation proceeds have been estimated at Rs.15 billion. They have been shown as part of the pool from which the expenditure will be met. It would be recalled that a declaration was made some time ago that such proceeds will be used only for debt retirement. What happened to that declaration?

On the expenditure side, the most positive feature is the allocation of Rs202 billion for PSDP. One hopes that it does not get truncated by corruption and inefficiencies. Honestly spent, it will unleash substantial economic activity, may be not as massive as claimed, and will create lot of jobs, may be not as many as 10 million.

Expenditure on debt servicing has gone down by 23.51 percentage points which augurs well for the economy. Higher Investment in sectors of health (6 billion), Education (13 billion), Communication (17 billion) etc are indicative of a healthy mindset. It may, however, be stressed here that the human development sectors need a much higher investment.

The increased expenditure on defence is disturbing indeed at a time when our borders are relatively calmer and peace initiative with India has been set in motion. Only a few months ago, it was announced that the strength of our forces is being reduced by 50,000 men with the promise of substantial saving.

The move does not appear to have come a long way from the time when it was dangling from the edge of a precipice. We have seen the economic upsurge in the past as well, in 1960s and 1980s.

But the lack of distributive justice of economic goods gave rise to massive socio-economic dislocation. The situation is not very different today. If the benefits of economic growth do not reach the masses, all this progress will be nullified. Poverty alleviation and distributive justice should be our primary goals from now on.

Tailpiece: It was a heroic effort on the part of the finance minister (whose first language is English) to read his budget speech written in Urdu. His fumbling with the pronunciation of some words provided much needed comic relief.