Govt asks WB to give $400m loan for improving tax system

ISLAMABAD: The Pakistan Tehreek-e-Insaf (PTI) government is seeking $400 million or Rs56 billion loan from the World Bank (WB) for a risky venture of fixing the country’s ailing tax system amid apprehensions that foreign-funded reforms package in the past had not yielded desired results.

The Federal Board of Revenue (FBR) and the WB are negotiating the $400 million that attaches conditions like setting up a constitutional body to resolve tax disputes between the Centre and the provinces, according to the government sources.

It also seeks change in tax structure for the agriculture sector, which is a contentious issue due to strong influence of landlords on economic policymaking.

But the Economic Affairs Division has not yet made a formal request for the loan, although FBR and the WB have covered significant ground during past few months.

Initially, the size of the proposed programme was $285 million.

If cleared by its board, it will be the second full-scale attempt by the WB to reform the FBR in the past 14 years. Its earlier $150 million worth of Tax Administration Reforms Project badly failed to yield the desired results and the money went down the drain.

Like the last package, the WB is again planning to bring reforms in tax administration and tax policy simultaneously. As a result of these reforms, the FBR’s workforce at headquarter may be slashed by nearly 20 per cent, according to the sources who are involved in loan consultations.

For over two years, the WB has suspended approvals of new policy loans due to deterioration in Pakistan’s macroeconomic indicators. One of the conditions for qualifying for the policy loan is to have official foreign currency reserves sufficient to finance minimum two and half months of imports. Pakistan does not fulfil this condition.

The programme for result financing, known as PfR, is a hybrid financing instrument that could be used to extend the $400 million loan.

 

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