“It may be difficult but not impossible” to mop up Rs1,025 billion tax revenue and attain a GDP growth of 7.2 per cent that translates into a cool Rs600--650 billion jump in the size of economy during the fiscal year 2007-08.

This is how the businessmen responded when asked to give their assessment on the budgetary roadmap for an election year.

Political temperature is already on the rise much before the formal launch of election campaign. No one knows how it is going to affect the economy and business environment. But the Chairman of Central Board of Revenue, Abdullah says that the CBR’ s collection for this year is well on target. He says he would have mopped up a few billion rupees more had there been no situation that exists now. Without being specific, he was referring to the situation created after March 9.(judicial crisis). These observations cast shadows on the tax collection efforts in the next fiscal year.

Industrial growth, particularly the large-scale manufacturing has not been up to the expectations this year Both the industrial and export growth have receded.. The seven per cent growth is mainly driven by the services and agriculture sectors. This creates doubts whether over seven per cent growth set for next year will be achieved and yield Rs1 trillion tax revenue.

The present assemblies may be asked to elect President General Pervez Musharraf sometimes in September or October. This is the time when three major kharif crops are harvested--cotton, rice and sugarcane. Any disturbance in harvesting of these crops will seriously impact the economy. Interrupted cotton supplies can affected the largest industry-- textiles. Then the general elections for new assemblies may be held in January or February 2008. October onwards is the period for sowing of wheat which is other vital crop. If electioneering affects wheat sowing, the country should be ready to pay for a huge import bill.

“Revenue collection and economic growth are two objectives which this government has been achieving almost every year since the last four years and there is no reason why it should not do next year too’’, says Majyd Aziz President of Karachi Chamber of Commerce and Industry. He agrees that business cannot remain insulated from the heat generated by political process. But the overall growth tempo is such that it will jump over these pitfalls.

The next year’s target of Rs1,025 billion is up from an expected collection of Rs835 billion plus for this fiscal—an increase of about Rs190 billion stipulated from an expected expansion of the economy byf Rs600--Rs650 billion.. A virtual blanket levy of one per cent surcharge on import will generate additional Rs120--125 billion A rough estimate shows that one per cent surcharge will be levied on about $20 billion import out of total $30 billion. At one per cent, $20 billion dollars import should $2 billion or Rs120 billion. Rationalisation and adjustments in rates of taxes and duties on various items are expected to give another Rs44--46 billion. The existing size of the economy at $146 billion (Rs8,760 billion) has the capacity to generate additional Rs3--4 billion. The remaining Rs30 to Rs40 billion will be obtained from the an expanded economy and streamlining of CBR management. This is how the roadmap for recovery of more than one trillion rupees tax is explained by those who are in touch with the CBR.

“But don’t forget that the government compromised on three big potential areas of tax generation’’, Asad Saeed, an economist said. The government was dropping hints of improving tax collection from the agriculturists by asking CBR to recover it. There were hints that unlimited exemption from capital gains on stock exchange transactions will come to an end. And finally, the real estate transactions will be documented and taxed.

President Pervez Musharraf was given a detailed briefing by the CBR in March this year. The CBR suggested that tax on agriculture incomes should be made a federal responsibility because less than Rs2 billion was collected and that too by only three of four provinces. It was claimed that after CBR is given responsibility, the collection would be anywhere up to Rs50--Rs60 billion a year and will show progressive rise in future. ``It was instantly made a provincial autonomy issue by politicians, bureaucrats and landlords’’, an observer said. For obvious reasons, the government dropped the idea.

The stock exchange is getting exemption from capital gains tax since 1974. Real estate business is the other area which remains under-taxed. That real estate transactions are being under-reported which is one of the main sources of black money generation , also recognised at the highest level. The 2007-08 budget announces tax exemption for three years on incomes from transaction with the real estate investment tust (REITS).

“In the initial stages , the proposed trust be a facilitator to convert black money into white but eventually stabilise prices of property and give an opportunity to small investors to be part of the big deals,” says Mr Akbar Sheikh, a leading representative of the textile industry. based in Lahore.

On taxation measures of 2007-08 budget, he said the spinning sector has been loaded with additional Rs6 billion burden, Rs3 billion burden coming from wage rise of the workers and Rs3 billion from one per cent surcharge levy on imports. Against this burden, the spinning sector has been given a relief of about Rs600 million by way of loan swapping. The spinning sector has now been brought in fold of concessional rate loans given to export-oriented industries. Akbar Sheikh estimates conversion of about Rs20 billion loans at concession rates. This swapping of loans will give a three per cent discount to the spinning mills.

In its own way, the government has responded to textile exporters demand on withholding tax on export proceeds. Since exporters complained harassment at the hands of tax collectors, the government enforced withholding tax at the rate of 0.75 to one per cent. But as export grew—almost $10 billion —exporters were uncomfortable on a virtual deduction at tax source. They were given a choice of normal assessment by the tax collectors. Textile exporters were divided. Some wanted filing of returns and assessment with provisions of scrutiny. Some wanted the old method of withholding tax but at reduced rate. The government opted for one per cent withholding tax that gives a minimum recovery of $1 billion.

But the government is also paying back about Rs35--40 billion as research and development rebate being offered at six per cent to readymade garments and knitwear, 3--5 per cent on fabric and other made -ups. More than Rs328 billion loans have been given on discount rate and a huge amount has been advanced as export refinance.

The government has put 398 items in zero rated duty import category which will cost more than Rs9 billion to the government by way of revenue loss. The benefit of this zero rated import will go to industry which however suffers from high utility rates, bad infrastructure and rising cost of doing business. ``This budget makes us pay more than relief given to us’,’ a local industrialist remarked.