ECONOMICS : Pakistanis Bite Back at New Taxes : Bhutto slaps levies on scores of consumer goods to trim deficit. Premier’s move is met with howls and strikes.

The Urdu word for taxes ( mehsool ) probably sounds no sweeter to the Pakistani ear than “1040” does to Americans.

But Benazir Bhutto, prime minister of a country where only an estimated 1% of the population pays taxes, has imposed heftier levies to trim the fiscal deficit.

Prices on scores of domestically produced consumer items and imports--from a small cup of ice cream (now 21 cents) to a computer ($1,800)--have zoomed upward by 20% in consequence.

On Monday, over howls of protest and a 48-hour strike launched by business leaders, the National Assembly approved Bhutto’s new taxes as part of her 8-month-old government’s 1994-95 annual budget.

The prime minister had promised a “tough budget,” and many Pakistanis believe she delivered. Attention focused on a general sales tax of 15% that now has been extended to cover more than 270 consumer products.

“I have no Aladdin’s lamp to change economic conditions overnight,” Bhutto said in a televised address. “We will have to sacrifice this year to reduce the budget deficit.”

The general sales tax is supposed to raise $500 million in revenue for a government that runs chronically in the red. Other new levies totaling $400 million are also programmed into the $12.8-billion spending plan.

Western diplomats and economists were impressed by Bhutto’s gutsy willingness to risk short-term political pain in return for cutting the fiscal deficit to a projected 4% of gross domestic product and transforming the economy.

“This is the first real step to trade liberalization and the first real step to tax reform,” an international economist in Islamabad said.

Under the new budget, tariffs have been cut, import license fees removed and export taxes lifted. Starting today, the rupee will be virtually convertible.

The domestic reception was more mixed. Opposition leader Nawaz Sharif said his party would not be an accomplice to the ruin of the Pakistani economy. Business leaders complained the new taxes will hobble leading industries such as textiles and construction.

At the beginning of the week, shops were shuttered, factories halted production and coal mines stopped work in response to a two-day strike call from the Federation of Pakistan Chambers of Commerce and Industry.

Lahore economist and businessman Akhmal Hussain, whose family enterprise makes ballpoint pens, doubts that Bhutto and her Pakistan People’s Party will get the results they hope for. “I think she’s a brave lady, but she needs a good economist to advise her. This particular budget is likely to increase inflation and decrease economic growth.”

Inflation in Pakistan is already running at an official 10.8%, while growth is only 4%, lackluster for an Asian economy. The government is projecting 7% economic expansion next year, but many doubt that will happen.

Faced with the business community’s protests, Bhutto’s government dropped its plan to allow tax collectors to arrest tax evaders. But it is still counting on tougher tax enforcement and heightened compliance to help fill government coffers.

By one economist’s estimate, no less than a third of projected new revenue would come from legal imports (smuggling is expected to decline) and from tougher application of tax laws. It remains to be seen whether that gamble will pay off in a country where mehsool is almost a dirty word and tax cheats are rarely, if ever, prosecuted.