World Bank has 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.
The $400 million Pakistan Raises Revenue Project will support the Federal Board of Revenue’s (FBR) focus to create a sustainable increase in Pakistan’s domestic tax revenue. 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. This will enable more effective use of taxpayer information and more targeted compliance. The Government has set improving tax revenue with low compliance costs as a high priority.
“Revenue mobilization plays an essential role in Pakistan’s fiscal sustainability,” said Muhammad Waheed, Task Team Leader of the Project. “The project will target raising the tax-to-GDP ratio to 17 percent by the financial year 2023-2024 and widening the tax net from the current 1.2 million to at least 3.5 million active taxpayers.”
Pakistan’s revenue performance has improved significantly from tax policy measures in recent years, rising from 9.5 percent of GDP in the financial year 2011-2012 to 12.9 percent in the financial year 2017-2018. This is still lower than the level needed by developing countries, of at least 15 percent of GDP, to fund basic government functions and provide services to people.
“Creating fiscal space through revenue mobilization is critical to reduce the country’s budget deficit, enabling people of Pakistan to benefit from better public investments and services,” said Illango Patchamuthu, World Bank Country Director for Pakistan.
The $118 million Khyber Pakhtunkhwa Revenue Mobilization 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. The project is anchored in the provincial government’s Public Financial Management Strategy (2017-2020) and will strengthen the government’s Public Financial Management system.
While the government of Khyber Pakhtunkhwa has made progress in revenue mobilization and management of public finances, its revenues remain low. Enhancing tax revenue could increase its capacity to provide better services to residents. It will also reduce its dependence on federal transfers, which accounted for 86 percent of provincial revenue in the financial year 2016-2017.
“Mobilizing domestic revenue is crucial to improving human development outcomes in Khyber Pakhtunkhwa,” said Raymond Muhula, Task Team Leader of the Project.
This project will support the government’s priority to increase its own source revenue and to better manage its resources.
Both projects address the priority areas identified in [email protected]: Shaping the Future, a flagship initiative that identifies frontier interventions for Pakistan to become a prosperous country by 2047.
The International Development Association (IDA), the concessional financing arm of the World Bank, is financing both projects.