ISLAMABAD, June 5: The government will borrow roughly Rs70 billion foreign funding to meet the gap of financing its 2007-08 budget, a senior official of the ministry of finance told Dawn.

"Since the budget deficit target for next fiscal year is being kept at 4 per cent of the GDP, about Rs60-70 billion funding is needed to be arranged from foreign sources," he said.

The fiscal deficit in 2006-07, he said, was likely to be ended up at 4.2 per cent by June 30 this year. He did not believe that Rs272 billion fiscal deficit recorded in the first nine months of the current financial year could pose any threat to the government.

"The possible negative effects on the economy will be neutralised through improved revenue collection position, regular foreign inflows and more foreign direct investment (FDI), which is likely to be over $6 billion by the end of the current fiscal year," the official said.

Asked about the rising trade deficit, estimated to reach $14 billion during the next financial year against the projected target of $9.4 billion for 2006-07, he agreed that it needed to be brought down. "But this is not a matter of any serious worry for us," he said adding that foreign inflows and increased remittances were helping the government to achieve its objectives.

In reply to a question, the official said that foreign exchange reserves were expected to touch an all time high $15 billion by June 30 this year.

However, he conceded that some of the major targets relating to trade deficit, current account deficit, imports, exports, inflation, industrial production and large scale manufacturing will be missed during the current financial year.

"But we should look at the positive side, which is the better GDP growth, good agriculture growth and the improved performance of the services sector," he said.

He said the highest ever Rs2 trillion consolidated budget has been finalised that sought to improve governance, remove economic inequality and alleviating rural poverty in 2007-08. Responding to a question, he said that energy crisis was a serious challenge and the likely demand supply gap of 2500MW in next year, will be narrowed by helping to have more power projects. In this regard, he referred to the decision of the Qatari government to set up a power project worth $500 million in Sheikupura, Punjab.

He defended the government's decision to have separate Rs204 billion budget for corporations, especially Water and Power Development Authority (Wapda), Oil and Gas Development Company Limited (OGDCL) and National Highway Authority (NHA). "This is how the total development budget would reach to record level of Rs724 billion in 2007-08," he said.

He assured that leakages and element of corruption in the development projects will be minimised in the next budget by shortly having a "strict monitoring system” in place.

Another official said that a decision has been taken to substantially increase direct taxes by reducing customs and excise duties in the next budget. He said the CBR had started collecting sizable taxes and would certainly achieve its Rs835 billion revenue collection target set for outgoing financial year.

"The government has no plans to introduce new taxes in the next budget," he said adding that the government has stopped introducing new taxes as the whole emphasis now is on universal assessment scheme through which people were paying taxes on their own. He said that the voluntary tax compliance has increased by 100 per cent, which was helping the CBR to collect the required taxes.

"People are filing their income tax returns by increasing the amount of their taxes and this is good for them and good for us," he said.

There was a time, he pointed out, when the CBR used to collect 70 per cent taxes through withholding tax, which was first lowered to 54 per cent and then to 40 per cent last year.

"We have proved through our conduct that we pay respect to the tax payers and accept their income tax returns without any objection," he said adding that the number of income tax returns has increased from 24,000 in 2003 to over 110,000 last year.

Responding to a question, he said that the CBR was discouraging litigation as it often proved to be a setback for everyone. "Now we sit across the table with the taxpayer and dispose of his case by even reducing 50 per cent of taxes."

He said the number of industrial, commercial and domestic power consumers have increased significantly due to which the number of taxpayers were also increasing throughout Pakistan.