KARACHI-Advisor to Prime Minister on Finance, Revenue and Economic Affairs, Shaukat Tarin has said the defence budget is unlikely to be reduced in the upcoming Federal budget for 2009-10 in view of the tense geopolitical situation of the region. He stated this while talking to newsmen here on Monday on a formal business lunch hosted by BMA Funds held at local hotel. Tarin said the Federal govt is working on the mechanism of increasing resource mobilisation by decreasing saving-investment gap. He also said inflation is expected to turn down into a single digit by August 2009 on account of improvement in the reserves position and reduction in the market interest rates. 'There is a dire need to generate capital from using our debt market as broadening the tax base is a key to a sustainable macroeconomic framework, particularly as access to external financing is increasingly difficult. Therefore, we must reliance on domestic financing, he said. 'The increase in tax-to-GDP ratio is necessary for fiscal sustainability. A focus on expanding the tax base rather than raising the tax rate is required. Thus, every sector has to pay taxes. Most of the services (particularly trade, transport, professional services etc.), agriculture and real estate sectors need to be taxed commensurately with their share in GDP, he added. 'In order to revive growth rate, we should focus on industrial and agricultural productivity, for this purpose, investment should be made in the sectors like manufacturing and agriculture. We should reduce extra taxes from the manufacturing sector, improving power and energy situation, he said. Govt is planning to strengthen the super-visonary and regulatory role of State Bank, SECP and FBR, he said. He said that the narrowing trade deficit and robust remittances has caused reduction in the current account deficit and even for the month of February 2009, we have witnessed first surplus in monthly current account surplus since June 2007. Meanwhile, Governor State Bank of Pakistan, Syed Salim Raza said that on the financing side, it would be important to accelerate the development of domestic capital markets. 'Not only would this reduce the govts need to borrow from the banking system, a vibrant debt market could help ease credit access concerns, increase efficiency of the banks (as they would have to compete for funds), and help foster savings. 'The development of long-term debt market, investment plans for pension funds, revitalisation of mutual fund industry, and corporate bond markets are also necessary for efficient allocation of resources, he added. APP adds: Tarin said the defence budget of Pakistan is not high but it should be used in an effective manner. He said that presently, defence budget is on a level of Rs 250-350 billion but this has been decreased according to overall national product during 10 to 15 years. He said that the State Bank may have its own stance regarding defence budget but our stance is different. GDP growth will be raised to 6 to 8 per cent with the help of concerted efforts in next three years, he added. He said that the GDP has declined to 2.5 per cent due to economic slow down following the tough monetary policy. Now the economy has started seeing some recovery and we see the light at the end of the tunnel. We will see which areas needed to be financed to boost the growth in future, he added. The Advisor said that GDP would be raised to 4 per cent next year and 5 per cent in the year after. To a question, he said that the entire tax system needs an overhaul and there should be only two taxes in the country, i.e., income tax and consumption tax. 'This approach will bring in buoyancy in tax system. This will be achieved in next 5 to 6 years, he said.