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Pakistani Govt. Secure $518 Million from World Bank for ‘Tax Reforms’

ISLAMABAD – The Pakistani Federal and Khyber-Pakhtunkhwa governments on Friday secured $518 million or Rs79 billion in loans from the World Bank (WB) at the name of enhancing tax revenues -a job that can be completed without burdening the nation with foreign loans, Express Tribune reported Friday.
The World Bank approved a package of $518 million for two projects in support of Pakistan’s ambitious efforts to raise revenue and reduce compliance cost with a goal of providing better services to the people, Country Office of the World Bank stated on Friday.
Pakistani Prime minister Imran Khan has already announced to setup a commission to probe Rs18 trillion addition in public debt in the past ten years.
The WB approved $400 million loan for tax reforms in Federal of Revenue and another $118 million for Khyber-Pakhtunkhwa Revenue Mobilisation and Public Resource Management Project.
There are two key objectives tagged with the Pakistan’s Federal Board of Revenue’s (FBR) $400 million loan -increasing tax to Gross Domestic Product ratio from 13 per cent to 17 per cent and enhancing the income tax return filers from 1.2 million to 3.5 million by 2024. Other goals include reducing the hours required to pay taxes from 293.5 hours a year to 197 and bringing customs reforms.
The Pakistani government’s decisions to take loans for increasing the tax base has raised questions over Imran’s claim that people are not coming under the tax net due to the previous corrupt government.
The WB has given the $518 million loan at concessionary rates –money that could have been used more productively by creating an asset.
Out of $400 million, $320 million will be linked with the achievement of certain targets.
The loan has been planned for bringing improvements in four broader areas. The project information document of $400 million puts these areas as having a “simple and coherent tax system, control of taxpayer obligations, compliance facilitation, and institutional development.”
The WB document claims that Pakistan needs to broaden the tax base instead of burdening the existing taxpayers. However, IMF’s practical steps are contrary to this advice. The IMF has asked Pakistan to make tax efforts equal to 1.7 per cent of GDP next year that forced the government to slap at least Rs516 billion additional taxes in budget 2019-20.
The $400 million Pakistan Raises Revenue Project will support the FBR focus to create a sustainable increase in Pakistan’s domestic tax revenue, says an official handout of the WB. It added the project will assist in simplifying the tax regime and strengthening tax and customs administration. It will also support the FBR with technology and digital infrastructure and technical skills, according to the WB.
“The ($400 million) project will target raising the tax-to-GDP ratio to 17 per cent by financial year 2023-2024 and widening the tax net from the current 1.2 million to at least 3.5 million active taxpayers,” said Muhammad Waheed, the WB Task Team Leader of the Project.
Pakistan’s revenue performance has improved significantly from tax policy measures in recent years, rising from 9.5 per cent of GDP in financial year 2011-2012 to 12.9% in financial year 2017-2018, according to the WB.
This is still lower than the level needed by developing countries, of at least 15 per cent of GDP, to fund basic government functions and provide services to people, it added.
“Creating fiscal space through revenue mobilisation is critical to reduce the country’s budget deficit, enabling people of Pakistan to benefit from better public investments and services,”Illango Patchamuthu, World Bank Country Director for Pakistan, said.
The $118 million Khyber-Pakhtunkhwa Revenue Mobilisation and Public Resource Management Project will support the Government of Khyber-Pakhtunkhwa to increase its capacity for revenue collection and the management of the province’s resources, according to the WB.
(Sahar News Monitoring Desk)

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