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Pakistan seeks another loan from World Bank to reform revenue body

13 December, 2011

ISLAMABAD: After failure to implement donor-funded tax reform project in letter and spirit during the tenure of the present government, Pakistan has formally requested the World Bank to obtain another multimillion dollar loan to develop a fresh reform project for the Federal Board of Revenue (FBR) and preliminary preparation are underway, Our Sources learnt on Monday.

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The World Bank and the UK-based Department for International Development (DFID)-funded ongoing tax administration reform project (TARP) is going to expire on December 31, despite getting an extension, but the World Bank had refused to grant any further extension, leaving no other option, but to seek new project loan from the bank, sources said.

One of the top official of the World Bank also confirmed that due to the present government’s failure in fulfilling the promised “reform agenda”, the donors, including the World Bank and the Asian Development Bank (ADB) have put in place outcome-based approach in their future-funded projects through which Pakistani authorities would have to implement the projects first and then disbursement would be followed, the sources said.

“Without prior implementation on the projects, no money will be released for any projects funded both by the World Bank and the ADB,” the sources added. The programme loans of the two institutions in which lump sum amount is given, had already been in suspension mode because of Islamabad not having under the umbrella of the IMF, the sources said.

“Yes, we have requested the World Bank last month for securing new project for the FBR after expiry of existing TARP by the end of the ongoing month,” this was the brief response when Secretary Economic Affairs Division Wajid Rana was asked on Saturday.

The sources said that the preliminary preparation for finalising the exact size, prior actions and specific areas of the tax reforms are under discussion and it is expected that the new project will be ready within the next couple of months.

The TARP that would be expired on December 31 remained a problematic project for the World Bank during the last few years as this project was initially conceived and signed during the tenure of Musharraf-Aziz regime, but failed to utilise its allocated amount of $123 million till December 2009.

During the PPP regime, the World Bank Executive Board granted extension of two years till December 2011 and cut down its size to over $78 million, including the grant amount of DFID.

Despite getting two-year extension from 2009 to 2011, the sources said, this project mainly helped the FBR for constructing buildings, purchasing cars and computers, but the objective of automation for broadening the tax base did not materialise. So the chances of categorising TARP as successful project do not seem feasible, the sources said.

However, the revenue body officials say that the IT system has been increasingly integrated and implementation at field formations is gaining momentum. Electronic filing has achieved international rates. The e-filing system has been extended to various taxes administered by the FBR.

The general sales tax (GST) refund system has been modernised and refunds are now paid faster and in a safer way, the sources said, adding that the FBR has now prioritised enforcement actions.

As a result, late filing by the largest taxpayers has decreased considerably. The FBR has improved planning and monitoring systems. The chairman and the FBR Board are now operating under audit and enforcement plans and have established a set of performance indicators, which are automatically produced every month by the IT system.

As result of the expeditious refund system, 54,434 cheques were issued in FY11 against 20,453 in FY2010. Similarly, Rs52.2 billion was paid in refunds in FY11, which was almost twice that paid out in FY10.

Two years back, the World Bank had cut down $49.2 million from its overall cost for TARP, out of which $24.8 million was slashed down from cheaper and soft lending in the shape of IDA, while $24.4 million was reduced from commercial lending in the shape of IBRD.

However, official documents showed that out of the total revised cost of $73.783 million for TARP, Pakistan’s tax authorities had planned to utilise $7.265 million for technical assistance, developing of ICT-software $3.826 million, ICT-hardware $19.886 million, infrastructure development $31.036 million, vehicles $2.113 million, training $6.365 million and programme management $3.289 million.


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