Pakistan’s tax authorities have been reported as unlikely to achieve key targets under the $400 million World Bank-funded project, leading to a poor performance rating.
The project sought to increase the tax-to-GDP ratio in the country to 17% by June 2024, but the federal and provincial tax authorities will not be able to meet this objective. Tax-to-GDP has decreased significantly since June 2018, when it was 13%, and currently stands at 10%.
The Pakistan Raises Revenue project, which is managed by the Federal Board of Revenue (FBR), continues to have a “moderately satisfactory” poor rating from the World Bank. Despite the fact that the overall project development objective rating is still satisfactory, the rating is given to projects that experience implementation delays.
By the third quarter of the fiscal year 2023, the World Bank had only disbursed $210 million of the $320 million it had targeted, which is $110 million less than the disbursements. The tax authorities will therefore fall short of their goal of raising revenues to 17% of the size of the economy.
The target of raising the tax-to-GDP ratio was primarily given to the FBR, despite the fact that Pakistan’s four provinces barely contribute 1% of the GDP in taxes. Low tax revenue also results in increased federal borrowing. The FBR’s revised tax goal for this year is Rs. 7.640 trillion, or only 9% of GDP.
Despite receiving foreign loans under the guise of tax reform, the FBR’s tax-to-GDP ratio has gotten worse. The FBR attempted to purchase 155 luxury vehicles with $6.5 million from the same project last month, but this move received harsh criticism.
Additionally, the FBR must increase the number of compliant taxpayers from the current 3 million to 3.5 million by June 2024.
From October 17 to November 11, 2022, the World Bank carried out its Mid-Term Review (MTR) of the project. The review’s recommendations included reorganising project performance’s outcome and intermediate indicators.
The report revealed that the monitoring and reporting of tax arrears have not advanced. In terms of meeting its goal of processing refund claims, the FBR is also running late. The program’s goal is for at least 50% of refund requests to be processed within three months of the request, but the current ratio is only 15%.
The report emphasised the need for the FBR to update its outdated branded software and replace its out-of-date ICT hardware. The MTR of the loan programme states that as of right now, “technical streams have not been established” as a measure of progress.
However, the report did note some improvement in the performance of a number of indicators related to disbursements, including a decrease in withholding tax lines and the addition of 462,677 new taxpayers discovered through automated data sharing and ICT-based business intelligence tools.
Overall, Pakistan’s tax authorities are having trouble reaching their goals, and the World Bank is concerned about the project’s poor results.
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