Latest news with #PakistanRaisesRevenue
Business Recorder
26-05-2025
- Business
- Business Recorder
Taxation system needs fundamental reform
EDITORIAL: Reportedly, the World Bank (WB) deferred the approval of additional International Development Association (IDA) credit equivalent to $70 million for the Pakistan Raises Revenue (PRR) project. It is concerning that official documents reveal Pakistan's tax system raises little revenue, creates economic distortions, and imposes a disproportionate burden on the poor — largely due to systemic inefficiencies. Alarmingly, the World Bank's analysis shows that Pakistan's fiscal policies have a more pronounced effect on increasing poverty and a weaker impact on reducing inequality compared to other lower-middle-income countries. The WB analysis reflects ground realities. Pakistan's taxation system is heavily skewed towards indirect taxes, while even a significant portion of direct taxes is collected through indirect mechanisms. The result is: even the direct taxes levied in this manner get priced in similar to indirect prices that are passed on and exacerbate the burden of high rates of indirect taxes on the people with disproportionately higher onus on the poor, while the wealthy remain immensely undertaxed. A major share of taxes is collected at the import stage — on average, around 60 percent of GST during FY19–FY24. Additionally, a sizable portion of direct taxes is collected at the import stage. Compliant businesses adjust this against their income tax liabilities, but informal players simply pass the cost on to consumers. Even within the domestic supply chain, taxes intended to target traders and retailers are eventually transferred to the end consumer. These tax inefficiencies are embedded in domestic goods, making them more expensive and reducing the competitiveness of local firms. This is a key reason why Pakistan's exports have failed to diversify beyond traditional sectors. Large exporters with access to FBR (Federal Board of Revenue) officials and the PMO (Prime Minister's Office) get their tax refunds, while smaller or newer players struggle to achieve the same. You cannot export inefficiencies — this is why exports have stagnated, while distortions remain priced into domestic goods and services. The lower the income, the higher the burden — especially when essentials like milk are taxed at one of the highest GST rates in the world. The government has also imposed Super Tax on corporates, which in some cases — particularly in relation to FMCGs — has been passed on to consumers. This is evident from the fact that net margins for these companies have remained stable, while gross margins have increased. Higher income taxes are, in effect, also being passed on through price hikes. Higher taxation partly explains the unprecedented inflation witnessed over the past couple of years. This has pushed poverty levels up — now estimated at a staggering 44 percent. The poor are being strangled while the middle class is sliding into poverty. Meanwhile, the wealthy continue to enjoy rising incomes and pay a far smaller share of taxes leading to widening of the already yawning inequality. Another structural issue is tariff protection, which allows big businesses to protect their margins while raising prices for consumers — placing a heavier burden on low-income segments. Under the current tax structure, achieving productive growth and export expansion is nearly impossible. The system needs fundamental reform. All income — regardless of source — should be treated equally in both letter and spirit. Reliance on indirect taxes must be reduced. Corporate income tax rates should be lowered, and, most importantly, GST rate should be slashed. However, these goals remain pipe dreams without political will and enforcement. There must be a starting point. The government should capitalise on falling inflation, subdued global commodity prices, and improving economic sentiment to initiate long-overdue tax reforms in the FY26 budget. Copyright Business Recorder, 2025
Business Recorder
21-05-2025
- Business
- Business Recorder
World Bank defers additional $70m IDA credit to Pakistan Raises Revenue
ISLAMABAD: The World Bank (WB) has deferred the approval of additional International Development Association (IDA) credit in the equivalent amount of $70 million to Pakistan Raises Revenue (PRR) project, which was aimed at providing additional investment financing to the Federal Board of Revenue (FBR), in support of its new Transformation Plan, official sources revealed to Business Recorder. The World Bank's Board of Executive Directors was scheduled to consider the additional credit of $70 million for the PRR project on Wednesdays (May 21, 2025); however, sources have confirmed that the Pakistani authorities and the bank would hold further negotiations next week. The board is now likely to consider the agenda in June 2025. Official documents revealed the tax system raises little revenue, generates economic distortions, and imposes a high burden on the poor largely due to the revenue system. Recent analysis shows that Pakistan's fiscal policies have a more pronounced impact on increasing poverty and a less significant effect on reducing inequality than average for lower-middle-income countries. World Bank likely to approve additional IDA credit to PRR The additional financing (AF) incorporates a Level 2 Restructuring to introduce new activities and change some activities under the existing investment financing component. It also updates the results framework to reflect revised outputs linked with the investment financing component, and extends the project end date to June 30, 2027. With this AF, the total project amount will increase to $470 million. Project outcomes contribute directly to Outcome 5 of the CPF – More Public Resources for Inclusive Development. By increasing FBR collections to 10 per cent of GDP in fiscal year 2027, the project aligns with CPF outcome indicator 5.1, which aims to raise the tax-to-GDP ratio to 15 per cent by 2035. Enhanced revenue collection will enable Pakistan to increase spending on essential services over time, meeting fiscal financing needs without generating excessive fiscal imbalances in the future. Beyond the CPF's outcomes and targets, the project also indirectly contributes to World Bank Group (WBG) Scorecard indicators related to improved access to services, better debt sustainability, and increased private investment. PRR is an Investment Project Financing (IPF) with an original allocation of $400 million, with a results-based component and an investment financing component. The results-based component ($320 million or Component 1) disburses against documented execution of eligible expenditures under the Eligible Expenditure Programs and the achievement of the Disbursement Linked Indicator (DLI) targets. These DLIs are linked with four objective areas: (i) simple and transparent tax system; (ii) effective control of taxpayers' obligation; (iii) facilitation of compliance; and (iv) institutional development for efficiency and accountability. The investment financing component (original allocation of $80 million, Component 2) mainly focuses on investment in the FBR's information and communications technology (ICT) systems, including ICT equipment, software and business process improvement, cargo weighing, contact-less scanning, and laboratory equipment for customs inspections (goods). It also finances consulting and non-consulting services for software development, technical assistance (TA), and training. AF activities will be conducted within the geographical scope of the existing project. The proposed restructuring responds to the request of the Government of Pakistan to scale up project activities under Component 2 to meet the FBR's emerging priorities, and to extend the duration of the Project. The proposed Level 2 restructuring supports: (i) AF of $70 million for new activities under the investment financing component; (ii) extension in the duration of the project by 24 months (until June 30, 2027); and (iii) an update of the results framework to reflect revised outputs linked with the investment financing component (change of previously approved activities), as well as align with the extended project duration until June 30, 2027. With this AF, the total Project amount will increase to $470million. Copyright Business Recorder, 2025
Business Recorder
21-05-2025
- Business
- Business Recorder
World Bank defers additional $70m IDA credit to PRR
ISLAMABAD: The World Bank (WB) has deferred the approval of additional International Development Association (IDA) credit in the equivalent amount of $70 million to Pakistan Raises Revenue (PRR) project, which was aimed at providing additional investment financing to the Federal Board of Revenue (FBR), in support of its new Transformation Plan, official sources revealed to Business Recorder. The World Bank's Board of Executive Directors was scheduled to consider the additional credit of $70 million for the PRR project on Wednesdays (May 21, 2025); however, sources have confirmed that the Pakistani authorities and the bank would hold further negotiations next week. The board is now likely to consider the agenda in June 2025. Official documents revealed the tax system raises little revenue, generates economic distortions, and imposes a high burden on the poor largely due to the revenue system. Recent analysis shows that Pakistan's fiscal policies have a more pronounced impact on increasing poverty and a less significant effect on reducing inequality than average for lower-middle-income countries. World Bank likely to approve additional IDA credit to PRR The additional financing (AF) incorporates a Level 2 Restructuring to introduce new activities and change some activities under the existing investment financing component. It also updates the results framework to reflect revised outputs linked with the investment financing component, and extends the project end date to June 30, 2027. With this AF, the total project amount will increase to $470 million. Project outcomes contribute directly to Outcome 5 of the CPF – More Public Resources for Inclusive Development. By increasing FBR collections to 10 per cent of GDP in fiscal year 2027, the project aligns with CPF outcome indicator 5.1, which aims to raise the tax-to-GDP ratio to 15 per cent by 2035. Enhanced revenue collection will enable Pakistan to increase spending on essential services over time, meeting fiscal financing needs without generating excessive fiscal imbalances in the future. Beyond the CPF's outcomes and targets, the project also indirectly contributes to World Bank Group (WBG) Scorecard indicators related to improved access to services, better debt sustainability, and increased private investment. PRR is an Investment Project Financing (IPF) with an original allocation of $400 million, with a results-based component and an investment financing component. The results-based component ($320 million or Component 1) disburses against documented execution of eligible expenditures under the Eligible Expenditure Programs and the achievement of the Disbursement Linked Indicator (DLI) targets. These DLIs are linked with four objective areas: (i) simple and transparent tax system; (ii) effective control of taxpayers' obligation; (iii) facilitation of compliance; and (iv) institutional development for efficiency and accountability. The investment financing component (original allocation of $80 million, Component 2) mainly focuses on investment in the FBR's information and communications technology (ICT) systems, including ICT equipment, software and business process improvement, cargo weighing, contact-less scanning, and laboratory equipment for customs inspections (goods). It also finances consulting and non-consulting services for software development, technical assistance (TA), and training. AF activities will be conducted within the geographical scope of the existing project. The proposed restructuring responds to the request of the Government of Pakistan to scale up project activities under Component 2 to meet the FBR's emerging priorities, and to extend the duration of the Project. The proposed Level 2 restructuring supports: (i) AF of $70 million for new activities under the investment financing component; (ii) extension in the duration of the project by 24 months (until June 30, 2027); and (iii) an update of the results framework to reflect revised outputs linked with the investment financing component (change of previously approved activities), as well as align with the extended project duration until June 30, 2027. With this AF, the total Project amount will increase to $470million. Copyright Business Recorder, 2025
Express Tribune
18-05-2025
- Business
- Express Tribune
World Bank-funded project cost doubles after revision
The government has made the third revision in the troubled World Bank-funded Pakistan Raises Revenue project and almost doubled the cost to $150 million to upgrade technology and also to procure 179 vehicles, including bullet-proof cars. In rupee terms, the cost was increased from the original price tag of Rs12.5 billion to Rs40.8 billion — a surge of 226% in addition to giving two years' extension in its completion period. The Central Development Working Party (CDWP) on Thursday referred the project to the Executive Committee of the National Economic Council (Ecnec), said a statement issued by the Planning Ministry on Friday. The CDWP also expanded the scope of Punjab Chief Minister Laptop scheme and increased its cost by 170% to Rs27 billion. The Investment Projects Financing (IPF) component of Pakistan Raises Revenue Project worth Rs40.8 billion was referred to Ecnec for further consideration. The Planning Ministry said the project will be financed through a World Bank loan. The revised project focuses on modernizing the Federal Board of Revenue's (FBR) infrastructure through the replacement of outdated hardware, deployment of a private cloud, updated software licensing, and enhanced connectivity for field formations. The project documents stated that an amount of Rs2.2 billion has been allocated for procurement of 179 vehicles of different makes at the unit cost of Rs12.5 million for Digital Enforcement Units. These include 15 bullet-proof vehicles. The government had taken a $400 million loan in the name of Pakistan Raises Revenue. Out of which, $80 million had been allocated for hardware upgrading. Now this component has been increased to $150 million. The ministry stated that the FBR's requirements have substantially changed as a result of organization-wide thrust to adopt information and communication technology (ICT) based solutions for its core operations and facilitation of taxpayer, as envisaged under the FBR Transformation Roadmap 2024. The concept clearance proposal of the programme was approved in 2019. Ecnec in 2020 approved the original project at a total cost of Rs12.6 billion. Later on, the first revision of the project was approved by Ecnec in its meeting held in 2023 at a total cost of Rs21.5 billion. Now, the cost is Rs40.8 billion. The project documents underlined that based on discussions and understanding between the FBR and the World Banks's team during Mid-Term Review (MTR) mission aide memoire, the project has been restructured for including additional funding therefore scope of the project has been revised. There are certain changes in implementation strategies for achieving the programme's objectives and goals. The additional funds will be utilized to meet the requirements. These include piloting Mobile Tax Facilitation Services, initiatives for improved taxpayer compliance, establishing forum for technical consultations with provincial tax authorities on tax harmonization, staff capacity building, backup power equipment up-gradation and control rooms, it added. The project has been restructured on instruction of the prime minister and discussions and understanding between the FBR and World Bank's team during the Mid-Term Review mission aide memoire. The FBR had also conducted an inquiry report for identifying external reasons. The delay was because of non-award of contract under original project, lack of adequate rupee cover allocations as a main hindrance in procurement during last three years and the PM's directive to revise PC-I of Pakistan Raises Revenue to include components of the FBR Transformation Plan falling within scope of the project. But the Planning Ministry stated in its comments that these risks should have been catered in the risk mitigation strategy of the project and could have been managed by the project authority. The Planning Ministry recommended fixing the responsibility for the inability to mitigate these risks to complete the project as per its approved scope and time period. The revised project is also aimed at rolling out a Single Sales Tax Return system, development of Data Warehousing and BI tools, and digital transformation of value chains, the components that do not require any foreign loan. The project supports faceless assessments, border technology upgrades, and capacity building through training, expert panels, and IT enhancements, along with business process automation and risk management frameworks, according to the Planning Ministry. The Punjab CM Laptop Scheme worth Rs27 billion was referred to Ecnec for further consideration. The project is funded by the government of Punjab and will be completed by October this year. The project aims to distribute laptops to approximately 112,000 students currently enrolled in public sector educational institutions across Punjab with the final number subject to revised allocations. Targeting students in BS, MS, MBBS, and Engineering programmes, the selection will follow criteria approved by the Steering Committee and be based on verified student data from respective institutions. This initiative seeks to digitally empower students, enhance access to educational resources, reduce socio-economic disparities, and promote equal opportunities. It also aims to foster collaboration with the local ICT industry, support economic growth and entrepreneurship, and invest in human capital by equipping students with the skills needed to compete globally and regionally. To qualify for the laptop, the public sector universities and colleges students should get a minimum of 65% marks in intermediate exams. For public sector medical and dental colleges and universities minimum of 80% marks in intermediate are required. Students must not be a recipient of any laptop from PM laptop programme or any government laptop scheme.
