Pakistan is on The Right Track Towards Economic Recovery: Report

The Platform for Collaboration on Tax has launched its progress report for 2020.

This report is a joint effort by the International Monetary Fund (IMF), the Organisation for Economic Co-operation and Development (OECD), the United Nations (UN) and the World Bank Group (WBG).

It states that most of Pakistan’s first-year targets are on the right course despite the COVID-19 crisis. Pakistan’s Inland Revenue Service (IRS) has also completed the first draft of its 5-year strategic plan, which, along with the already approved 5-year strategic plan for the Customs Service, will constitute FBR’s medium to long-term vision and mission.

The platform is designed to improve the co-operation between international organizations (IOs) on tax issues. It formalizes regular discussions between the four IOs on the design and implementation of standards for international tax matters, strengthens their ability to provide capacity-building support to developing countries, and helps them deliver jointly developed guidance. It also increases their ability to share information on operational and knowledge activities around the world.

The report says that the government of Pakistan developed a Medium-Term Revenue Strategy (MRTS) with support from the World Bank. Drawing on comprehensive WB analytical work funded by DFID, WB organized a number of workshops to help the Federal Board of Revenue develop a tax reform strategy that aims to address challenges with tax policy design, coordination between different levels of government, narrow tax base complexities in the tax system, compliance rates, the informal sector, and revenue administration efficiency.

Since the last Annual Report, the MTRS has evidenced two important milestones in the last year. First, the World Bank has approved a large loan—the Pakistan Rises Revenue (PRR)—to support the Federal Board of Revenue (FBR) with $400 million. PRR’s objective is to contribute to a sustainable increase in domestic revenue by broadening the tax base and facilitating compliance, the report added.

The loan is result-based with annual targets. Once the results are attained the government and FBR will get the funds. The results are linked to improvements of the tax policy, for instance, the harmonization of the Sales Tax between the federal and provincial governments as well as administrative measures such as risk-based audits. The report stated that most of the first-year targets are in a good course even though the COVID-19 crisis.

Second, the Inland Revenue Service (IRS) has completed the first draft of its 5-year strategic plan, which, along with the already approved 5- year strategic plan for the Customs Service, will constitute the FBR’s medium to long-term vision and mission. WB will continue assisting the FBR to consolidate the MTRS providing technical advice in the tax policy and tax administration including customs fields.

COVID-19 Pandemic Slowed The Countries’ Progress

During the period July 2019 to June 2020, the shocks and disruptions caused by the pandemic slowed the progress made by countries with their MTRSs when governments’ priorities quickly shifted to the immediate need of containing the health and economic crises.

The report stated that the ministries of finance and the revenue administrations were compelled to shift focus to alleviating taxpayer hardship and maintaining business continuity while in the case of revenue administrations also practicing social distancing.

Despite the need to prioritize the short-term responses to the crisis, countries will need to soon focus on the economic recovery and the government revenue imperative will entail, on the one hand, providing timely stimulus and, on the other, paving the way for a medium-term fiscal consolidation. Several countries will reassess their medium-term projections of expenditure needs and reorient the tax systems reform in light of revised goals, possibly reprioritizing their development goals—including the SDGs for 2030.