Government Requests 1-Year Extension for World Bank-Funded FBR Project

The government has submitted a request for a one-year extension in the “Pakistan Raises Revenue (PRR)” project, valued at $400 million and financed by the World Bank. This extension aims to revise specific project development objective (PDO) indicators to improve attribution and disconnect from measurements that are no longer relevant.

The Ministry of Economic Affairs’ restructuring proposal includes:

1. Extending the project duration by one year until June 30, 2025, to ensure sufficient time for completing the Investment Project Financing (IPF) component.
2. Revising selected PDO indicators to enhance attribution and eliminate outdated measurements.
3. Updating select Disbursement Linked Indicators (DLIs) and Implementation Results Indicators (IRIs) to accommodate the extended project duration.
4. Modifying certain DLIs and verification protocols to account for unforeseen developments.

The PDO indicators entail:

1. Tax-to-GDP ratio: The target aims to increase the Federal Board of Revenue’s (FBR) total collections as a percentage of GDP, reflecting a shift from 8.5% in fiscal year 2023 to 8.8% in fiscal year 2025.
2. Time spent on tax compliance: With the discontinuation of the Doing Business (DB) report by the World Bank, the methodology for measuring this indicator is proposed to change to a case study approach.
3. Efficiency in customs clearance: Due to the absence of the DB report, the measurement methodology is suggested to switch to real-time data on Goods Declarations cleared within 48 hours, with a revised indicator name.

The proposed changes in DLIs include:

1. Reduction in withholding tax lines: The target is amended to reduce withholding lines from 20 to 30 by June 2023, followed by a focus on reducing 50% of withholding tax agents in key sectors in the project’s final years.
2. Enhancing coordination with provinces: To ensure effective data sharing, the description of DLR 3.4 is recommended to be revised for systematic and digital data sharing with all functional provinces.

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The PRR project, a five-year Investment Project Financing initiative, includes a results-based component disbursing against eligible expenditures and achieving DLI targets. The IPF component concentrates on investment in FBR’s ICT systems.

While the project has shown satisfactory progress, adjustments are needed to reflect current data availability and enhance attribution. Key achievements include reducing withholding tax lines, enhancing tax system transparency, and expanding the tax base through automated data sharing. Efforts are underway to implement electronic monitoring systems in various sectors, albeit with some delays.

In summary, the project’s extension and revisions aim to optimize its effectiveness in bolstering revenue generation and tax compliance in Pakistan.