1. business and industrial
2. business operations
3. management
4. project management

Document o f
The World Bank
Report No: 30374 - PK
FOR OFFICIAL USE ONLY
PROJECT APPRAISAL DOCUMENT
ONA
PROPOSED CREDIT
IN THE AMOUNT OF SDR 53.5 MILLION (US$78.5 MILLION EQUIVALENT)
ANb
PROPOSED LOAN
IN THE AMOUNT OF US$24.4 MILLION
TO THE
ISLAMIC REPUBLIC OF PAKISTAN
FOR THE
TAX ADMINISTRATION REFORM PROJECT
November 5,2004
Finance and Private Sector Development Unit
South Asia Region
This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. I t s contents may not otherwise be disclosed without
World Bank authorization.
CURRENCY EQUIVALENTS
(Exchange Rate Effective October 28,2004)
Currency Unit = Pakistani Rupee (PRs)
PRs 61.05 = US$US$I
US$0.016 = PRs 1
FISCAL YEAR
July 1 -- June 30
ABBREVIATIONS AND ACRONYMS
AGP- Auditor General of Pakistan
AGPR- Accountant General Pakistan Revenue
AOP- Annual Operational Plans
APL- Adaptable Program Loan
CAS- Country Assistance Strategy
CBR- Central Board of Revenue
CCFR- Cabinet Committee for Finance and Revenue
CFAA- Country Financial Accountability Assessment
CTFD- Customs and Tax Fraud Division
DFID- Department for Intemational Development
DPL- Development Policy Loan
EAP- East Asia and Pacific Region
ECA- Europe and Central Asia
FARAH- Financial Accounting, Reporting, and Auditing Handbook
FATA- Federaily Administered Tribal Zones
FMR- Financial Monitoring Reports
GDP- Gross Domestic Product
GFR- Government Financial Rules
GoP- Government of Pakistan
GPN- General Procurement Notice
GST- General Sales Tax
HRM- Human Resource Management
ICB- Intemational Competitive Bidding
ICT- Information Communication Technology
IDA- International Development Assessment
IMF- InternationalMonetary Fund
IMS- Information Management Systems
LAC- Latin America and Caribbean Region
LIL- Learning and InnovationLoan
LTU- Large Taxpayer Offices
MTR- Mid-term Review
MTU- Medium Taxpayer Unit
NCB- National Competitive Bidding
NIC- Natural Identification Card
NID- National Intelligence Division
NIS- New Items Statement
PATA- Provincially Administered Tribal Zones
PIFRA- Financial Reportingand Auditing
PIP- Project Implementation Plan
PMR- Project Management Reports
PMU- Project ManagementUnit
PPF- Project Preparation Facility
PRSC- Poverty Reduction Structural Credit
PRSP- Poverty Reduction Strategy Paper
PSDSF- Public Sector Debt Sustainability Framework
RMU- Risk ManagementUnit
RTO- Regional Tax Ofice
SBD- Standard Bidding Document
SOE- Statement of Expenditures
STARR- Sales Tax Automated Refunds RepositoIy
TFC- Taxpayer Facilitation Centers
TMS- Tax Management System
UNDB- United Nations Development Business
VAT- Value Added Tax
WAPDA- Water and Power Development Authority
Vice President:
Country ManageriDirector:
Sector ManageriDirector:
Task Team LeaderrTask Manager:
Praful C. Patel
John W. Wall
Joseph Del Mar Pemia
Mudassir Khan
FOR 0
PAKISTAN
PAKISTAN TAX ADMINISTRATION REFORMS PROJECT
CONTENTS
A. Project Development Objective
1. Project development objective
2. Key performance indicators
Page
3
4
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project
2. Main sector issues and Government strategy
3, Sector issues to be addressedby the project and strategic choices
4
5
10
C. Project Description Summary
1.
2.
3.
4.
Project components
Key policy and institutional reforms supported by the project
Benefits and'target population
Institutional and implementation arrangements
11
23
23
24
D. Project Rationale
1,
2.
3.
4.
5.
Project alternatives considered and reasons for rejection
Major related projects financed by the Bank andor other development agencies
Lessons learned and reflected in the project design
Indications o f borrower commitment and ownership
Value added o f Bank support in this project
25
26
28
28
29
E. Summary Project Analysis
1.
2.
3.
4.
5,
6.
7.
Economic
Financial
Technical
Institutional
Environmental
Social
Safeguard Policies
29
30
31
31
32
32
34
F. Sustainability and Risks
1. Sustainability
I
34
T h i s document has a restricted d i s t r i b u t i o n and may b e used by recipients only in
the performance o f t h e i r official duties. I t s contents may not b e otherwise disclosed
without World Bank authorization.
2. Critical risks
3. Possible controversial aspects
34
37
G. Main Conditions
1. Effectiveness Condition
2. Other
37
37
H. Readiness for Implementation
38
I.Compliance with Bank Policies
38
Annexes
Annex 1:
Annex 2:
Annex 3 :
Annex 4:
Annex 5:
Annex 6:
Project Design Summary
Detailed Project Description
Estimated Project Costs
Cost Benefit Analysis Summary, or Cost-Effectiveness Analysis Summary
Financial Summary for Revenue-Earning Project Entities, or Financial Summary
(A) Procurement Arrangements
(B) Financial Management and DisbursementArrangements
Annex 7 : Project Processing Schedule
Annex 8: Documents in the Project File
Annex 9: Statement o f Loans and Credits
Annex 10: Country at a Glance
MAW)
Map o f ISLAMIC REPUBLIC OF PAKISTAN - Page 101
39
47
72
73
83
84
90
95
96
97
99
PAKISTAN
Pakistan Tax Administration Reforms Project
Project Appraisal Document
South Asia RegionalOffice
SASFP
late: November 5,2004
3ector Managermirector: Simon C. Bell
Zountry ManagerDirector: John W. Wall
'roject ID: PO77306
Lending Instrument: Specific Investment Loan (SIL)
[ ]Loan
[ ]Credit
[ ]Grant
Team Leader: Mudassir Khan
Sector@): General public administration sector (100%)
Theme@): Tax policy and administration (P), Trade
facilitation and market access (P)
[ ]Guarantee
[ ]Other:
For LoanslCreditslOthers:
Loan Currency: United States Dollar
Amount (US$m): 102.9
Initial choice of Interest-rate basis: Maintain as Variable
Type of repayment schedule:
[xi Fixed at Commitment, with the following repayment method (choose one): level
[ ] Linked to Disbursement
Conversion options: [XICurrency
[XIInterest Rate
[ ]Caps/Collars:
rinancing Plan fUS$m):
Source
30RROWElURECIPIENT
.BRD
iDA
JK: BRITISH DEPARTMENT FOR INTERNATIONAL
3EVELOPMENT (DFID)
Borrower: GOVERNMENT OF PAKISTAN
Responsible agency: CENTRAL BOARD OF REVENUE
Address: Constitution Avenue, Islamabad
Contact Person: M.S. Lal, Member (Policy & Tax Reform)
Tel: 0092-5 1-9201482
Fax: 0092-5 1-9208864
Local
23.10
0.00
0.00
0.00
Foreign
0.00
24.40
78.50
23.00
Email: [email protected]
Total
23.10
24.40
78.50
23 .OO
Project implementation period: 5 years
Expected effectiveness date: 0113 112005
Expected closing date: 1213 112009
-2-
A. Project Development Objective
1. Project development objective: (see Annex 1)
The development objective o f the Project i s to fundamentally reform the Central Board o f Revenue (CBR)
for a more efficient and effective revenue administration system. The project aims to facilitate and promote
voluntary compliance, increase the overall collection result and guarantee fairer and more equitable
application o f tax laws. Additionally, the new human resource policy framework and management system
combined with modernized procedures and institutional structure will lead to an increase in transparency
and integrity o f the tax administration operations. The project aims to strengthen tax administration to
contribute to the achievement o f fiscal targets and facilitate the collection o f optimum tax revenues.
The Tax Administration Reform Project (TAW) seeks to support the reforms initiated by the government
for improving tax administration. The overriding objective i s to raise tax revenue through improved
compliance with tax laws and broadening o f the tax base; improving effectiveness, responsiveness and
efficiency o f tax administration through institutional and procedural reforms; improving collection through
transparent and high quality tax services; and strengthening audit and enforcement procedures.
This Project follows the successll completion o f an IDF Grant which was extended tu the Government in
2000 to facilitate development o f implementation pl&s for institutional reform o f CBR. TAW supports
the continuation and effective implementation o f the reforms initiated to enhance the capability o f the tax
system. Specifically, project objectives include:
a. Improving organizational efficiency and effectiveness of revenue administration: Create an
autonomous, transparent, and efficient CBR that i s organized around functional lines, encourages
self assessment and dispenses a fair and equitable process o f tax administration. This will include
modernizing tax operations for faster and reliable processing o f tax returns, increased capacity for
record keeping and management o f data through effective integration o f business processes and
information systems. In addition, this will include improvements in staff productivity and morale
through adoption of best practice policies for recruitment, training, performance evaluation and
compensation.
b.
Promoting compliance through strengthened audit and enforcement capacity and transparent
and high quality tax services: Compliance will be enforced through a risk based audit system as
well as fair and effective enforcement mechanisms that directly respond to changes in the
environment using information technology and a new intelligence and risk management system.
Voluntary compliance with tax and custom laws will be promoted through an intensive taxpayer
education and facilitation program, re-engineering o f C B R s business processes and reorienting i t s
operational culture towards a transparent and service-oriented organization. This will include
building effective-working relationships with taxpayers and minimizing contact between taxpayers
and tax officials to reduce discretion on part o f tax officials and subsequent opportunities for
corruption.
c.
Improving tradefacititation through modern and internationally acceptable customs
procedures: Introducing simplified, modern and risk-based import and export clearance and
related procedures, and bringing the system in line with internationally acceptable standards to
improve trade facilitation.
d. Improving integrity and fairness of tax administration: Implementation o f a comprehensive
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anti-comption strategy, including the creation o f an internal audit and internal affairs unit, regular
taxpayer and staff feedback surveys, and the dissemination o f a new code o f conduct. To design
and implement a new administrative dispute resolution mechanism.
2. Key performance indicators: (see Annex 1)
Key performance indicators for t h i s project will include both outcome and output indicators. Primary
outcome o f the project i s to raise tax revenue measured by increase in tax-to-GDP ratio. A benchmark
study specifically for customs will be carried out for performance measurement and monitoring will be
done against these indicators during the project life.
Each project component will have its own measurable performance indicators as indicated below:
Macro Indicators
Total tax revenues collected by CBWGDP ’
Tax revenues collected by sector/GDP
Average time taken by new businesses to register with tax authorities
Organizational efficiency and effectiveness
Amount o f taxes collected/Number o f tax administration staff
Compliance management
Number o f registered active taxpayers
Tax revenues paid on timehotal tax revenues assessed
. Ratio ‘additional taxes collected aRer tax audithumber o f tax audits conducted”
. Stakeholder opinion on quality o f services provided (collected through a structured survey
conducted by an independent firm and through report cards, if introduced)
3
Trade facilitation
Reduction o f the average customs clearance time to under 1 day by end o f 2006, and to under 4
hours by end o f the project, at designated sites.
Integrity and fairness
. Public perception o f revenue administration integrity as measured by periodic surveys
*
Staff perception o f integrity measured by periodic surveys
. Average number o f days to complete administrative appeals process
B. Strategic Context
1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1)
Document number: 28262-PAK Date of latest CAS discussion: March 26,2004
The CAS focuses on improving prospects for stable economic growth by reducing fiscal imbalances and
enhancing private sector response to reform initiatives, through institutional strengthening and increasing
efficiency, accountability and transparency o f core fiscal functions o f the public sector, while encouraging
greater documentation o f the economy. This project will achieve the CAS objectives by establishing a new
institutional framework for tax administration, which will widen the tax base and improve the efficiency
and effectiveness of tax collection. Eventually, the project will lead to increased tax revenue, reduced
government’s dependence on non-tax revenue sources and the budget deficit, whilst greater efficiency will
decrease the amount of time spent by businesses on these non-productive activities and encourage more
-4-
businesses to move into the formal sector.
2. M a i n sector issues and Government strategy:
Background
Since the early nineties, successive governments have tried to reform Pakistan’s tax system. These
attempts, however, have yielded limited results and the tax to GDP ratio has remained in a narrow band,
between 11 to 13 percent since the 1990.
I
Tax Revenue as YO of GDP
9.5%
9.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Source: Central Board of Revenue
*The graph only represents Tax Revenue collected by CBR
According to the Organization for Economic Cooperation and Development, tax revenue as a percentage o f
GDP in developed countries ranges from around 30 to 50 percent, with an average o f 38 percent, while the
average in developing countries i s about 18 percent. Although Pakistan’s tax/GDP ratio at 12.9 percent i s
well below the average for developing countries, it does not fare too badly when compared with other
countries in the region.
Table 1 :Tax to GDP ratio, selected countries
Tax to GDP Ratio
Regional Countries
rpp
I
I
Singapore
Sri Lanka
Thailand
China
Philitmines
Indonesia
Pakistan
Bangladesh
India
Nepal
0-w
I
I
I
15.4
14.5
13.8
16.8
12.3
13.1
12.9*
12.6
14.6
9.6
I
I
I
Iran
8.5
Sector Issues
The low tax to GDP ratio in Pakistan i s primarily due to inherent weaknesses in the tax system including:
(i)
inefficient tax administration; (ii)
a narrow tax base; (iii)
skewed tax structure; (iv) a complex and
non-transparent tax system; and, (v) corruption and tax evasion. Each of these issues i s discussed in detail
below.
(i) Inefficient tax administration: Despite previous reform efforts, many o f the long-standing
deficiencies in tax administration have not been rectified. The tax department has suffered from
profound institutional weaknesses related to poor management, weak human resources, low pay, lack o f
adequate systems o f financial and physical control, low quality and quantity o f tax auditors, unduly
bureaucratic processes with excessive scope for discretion and rent seeking by individual staff,
deteriorating physical infrastructure, lack o f transparency in the collection o f import duties, and
resistance to change. Other critical shortcomings include: (i)
poor identification o f non-filers and
stop-filers; (iipoor
) audit program design, implementation, and sequential follow-up; (iii)
poor use o f
database for cross checking; and (iv) absence o f tax transit and audit'inspection controls in customs.
(ii) Narrow tax base: Approximately 39.41 million men and women are employed in Pakistan. Of
these, only about 1.53 million (3.9 percent) pay tax. This ratio i s quite low especially when compared
with that o f the U S - 46 percent, UK - 48 percent and Australia - 53 percent.
The tax base in Pakistan i s narrow due to three main reasons. Firstly, a large proportion o f the
employed labor force i s employed in small-scale agriculture or informal enterprises, which usually do
not pay regularhixed wages and, if they do, these earnings are below the taxable threshold.
Secondly, the salary allowance and privileges o f certain groups are given concessions under the Income
Tax Ordinance 2001 and the Income Tax Rules 2002. These include widows, pensioners, research
organizations, non-govemmental organizations and those working in international development agencies.
Such concessions exclude a large number o f individuals from paying income tax and effectively reduce
income tax revenue.
Thirdly, many transactions in Pakistan are made on a cash basis and are not documented. This makes it
difficult to identify and register individuals and businesses and once registered, it i s still difficult to
assess income earned, corporate profits and tumover.
(iii) Skewed tax structure: In most developing countries, where income distribution i s uneven, it i s
easier to generate revenue by taxing usage o f commodities rather than the wealth/income o f the rich.
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This mechanism, however, raises the cost o f living for lower income groups. For countries trying to
improve standards o f living, this can prove counterproductive unless introduced with zero-rating on
basic goods and services used by the poor.
Historically, the Government o f Pakistan has relied heavily on indirect taxes to meet its fiscal needs.
While efforts have been successful in reducing this dependence, indirect taxation still constitutes nearly
68 percent o f government’s total tax revenue. This i s composed o f sales tax - 66 percent, customs - 19
percent and the remaining 15 percent through central excise duty.
Direct & Indirect Tax Revenue
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
(iv) Complex tax system: Pakistan’s tax laws are complicated and the process o f filing returns and
collecting r e f h d s cumbersome. Moreover, the system i s characterized by fkequently changing and ad
hoc legal and administrative arrangements, which provides opportunities for increased discretion and
enhanced opportunities for corruption. Taxpayers in Pakistan often have insufficient or uncertain
knowledge o f their tax obligations and there i s little support to help them understand the laws and/or
motivate them to improve compliance. This leads to a serious undermining o f taxpayer confidence in
the tax system, which in turn, filters through to lower tax revenue.
-7-
(v) Corruption and tax evasion: In Pakistan, salaries and incentives for tax officials have been highly
inadequate and fall short o f what officials could earn in the private sector. In various surveys conducted
to identify the root causes o f corruption, including perception survey carried out by the Task Force on
Tax Administration, poor compensation was cited as one o f the primary reasons for corruption. Other
reasons included the discretionary powers o f tax officials, lack o f accountability, complex structure o f
tax system, greed and societal pressures. In addition, the taxation system provided CBR employees
opportunities to accept andor demand bribes and fostered extortion. There are broadly two levels o f
corruption: firstly, a smaller proportion o f corrupt officers that extort the level o f payments that no
reward system can address; secondly, a larger proportion o f officers involved in corrupt practices are
doing so in order to feed, clothe and house their families. Improving the compensation and reward
system that i s linked with performance, reducing discretionary powers, introducing tax assessment and
collection procedures that do not involve contact o f taxpayers with tax officials, training and education
o f tax officials and taxpayers and developing adequate accountability mechanisms would help towards
eradicating t h i s illfrom the system.
On the other side, the informal structure o f the economy and non transparency o f the tax code and tax
collection practices also make it easy to manipulate data and evade taxes. Inaddition, the causes o f
corruption in the private sector include; lack o f tax culture, high tax rates, greed, lack o f accountability
and fear o f extortion or wastage o f money paid in taxes. However, the main reason for tax evasion cited
in the surveys was the belief o f people that they do not get anything in return o f the taxes paid.
Simplifying the tax system, educating the taxpayers, improving mechanisms for compiling data and
keeping records along with appropriate collection and enforcement procedures can go a long way in
addressing this problem.
Government Strategy
Realizing that increasing tax revenue i s critical for fiscal development, the Government has adopted a
two-pronged strategy: tax policy change - to make the tax system more responsive to growth and easier to
administer; and, tax administration improvements - to increase efficiency o f collection. Specifically, the
Government plans to make the tax policy more equitable, bring more taxpayers into the net, reduce the
number o f taxes, streamline the tax laws to make them taxpayer friendly, improve tax enforcement, and put
in place a tax administration system which i s efficient and responsive.
Government efforts to reform have been more concerted during the last few years. In June 2000, a Task
Force supported by the Bank was set-up to review the problems o f CBR. The Task Force presented a
detailed report in May 2001 and recommended a complete shift in the tax system from assessment to a risk
based system with simpler laws and procedures that relies on audit and reduces the contact o f tax Officials
with taxpayers. Based on this approach, in November 200 1, CBR developed a broad strategy for reforms
focusing on: (i)
restructuring o f CBR along functional lines and integration o f income, sales and excise
taxes; (ii)
reengineering and automating business processes and workflows; (iii)
establishing databases for
reporting and audit purposes; (iv) introducing self assessment system for filing o f tax returns; (v)
improving services for the taxpayers; and, (vi) strengthening the human resource base. T o improve its
fiscal position, the Government intends to enhance the tax to GDP ratio that has remained stagnant at
around 11 to 13 percent as a result o f a narrow tax base, weak tax administration, a complex tax regime,
and widespread culture o f tax evasion and corruption. For this, the Government i s focusing on improving
tax policy and strengthening tax administration. Tax policy reforms include: (i)
abolition o f wealth tax; (ii)
introduction o f two-tier Agriculture Income Tax in all provinces; (iiireduction
)
in multiplicity o f taxes both
at federal and provincial levels; (iv) rationalization o f various taxes; (v) reduction in Corporate Tax for
banking and non-banking companies from 58 to 47 percent and from 45 to 43 percent respectively; (vi)
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extending General Sales Tax to fourteen categories o f services; (vii) broadening the base o f General Sales
Tax; (viii) rationalization o f import duties, bringing down maximum tariff to 25 percent and reducing tariff
slabs from five to four; (ix) lowering o f income tax rate to 35 percent; (x) gradual withdrawal o f Central
Excise Duties; and, (xi) eliminating all tax whitener schemes.
Simultaneously, the Government made extensive policy reforms including change in organizational
structure of CBR, which has provided management with some level o f autonomy through the Cabinet
Committee on Federal Revenues, to implement reforms and has allowed private sector induction at the top
level. Within this framework, CBR has increased the salary levels o f about 150 staff working at pilot
reform initiatives as part o f reform team. The staff was selected through a competitive process o f internal
job postings. In addition, job descriptions and a database o f staff with their education and skills has also
been developed. This i s a major step in determining training and capacity buildingrequirements as well as
identifying non trainable staff who will be linked to the performance management system. All these
initiatives have given the ‘change’ signal and has helped create ownership for the reform agenda.
The Government has cut the number o f tax exemptions significantly as a move towards an SRO free
culture. Inthe last three budgets, over 75 exemptions were withdrawn under Income Tax and GST while
the GST coverage was also expanded to include 14 addtional categories. Income Tax exemptions through
SROs were discontinued and are now required to be part o f the Finance Bill. Most o f the remaining
exemptions correspond to core policy objectives or international agreements and are estimated to cost
nearly 0.5 percent o f GDP.
The CBR, while it continued with its short term ‘quick win’ reforms, also started preparation o f a
m e d i d l o n g term reform program with Bank assistance. A Project Preparation Facility o f US$2.9 million
was processed in 2002 to support implementation of the reform initiatives as well as hiring o f an
international consulting firm (Maxwell Stamp) to prepare a comprehensive strategy with implementation
timelines and costs for the m e d i d l o n g term reform program.
Short term reform measures focus on design and testing o f pilot schemes including the Large Taxpayer
Unit (LTU), the Medium Taxpayer Unit (MTU), customs selectivity and post clearance audit, sales tax
refund program, universal self assessment scheme, human resource information management system and
training and staff development. These reforms have partly been supported through the Public Sector
Capacity Building Project approved by the Bank in early 2004. The m e d i d l o n g term program will focus
on development o f the reforms across the country and throughout CBR operations.
Essentially, the reform program i s based on the following seven integrated buildingblocks:
(i) While remaining a government department, CBR w i l l be provided with greater autonomy in
determining i t s own policies and strategies in relation to recruitment, salaries, investment and
operation methods.
(ii)Restructuring the C B R into a modem functionally based and integrated Revenue Organization.
(iii)Promotion o f voluntary tax compliance and the re-orientation o f i t s operating culture towards a
transparent service-oriented organization through the implementation o f a comprehensive taxpayer,
and internal staff, education, training and facilitation program.
(iv) Adoption o f modem effective tax administration methods and policies through re-engineering o f its
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operating procedures, particularly focusing on:
0
0
0
0
0
(v)
Introducing a consolidated self-assessment scheme;
Minimizing the taxpayers - tax officials interface;
Adopting ‘Selectivity and Risk Management’ principles;
Replacing the present transaction based audit practice with the application o f selective post
return and clearance audit method across all taxes;
Systematic and comprehensive registration o f taxpayers in a single register applicable
across all taxes;
Widening o f the tax base;
Amending the Tax and Customs laws to enforce reforms as necessary;
Introducing fair and equitable appeals and appeasement procedures;
Introducing stronger enforcement penalties; and
Redesigning tax processes to reflect increased functionality and gradual integration o f tax
administration.
Increased use o f information technology and systems, both proprietary and custom built, across all
taxes to reduce processing times, increase administrative efficiency & transparency, and ensure
that the benefits o f shared information are reflected in increased levels o f compliance.
(vi) Improvements in productivity o f CBR staff and management through a comprehensive Human
Resource Development program to substantially raise staff skills, quality level and integrity in line
with international standards through training, monitoring, restructuring and redeployment.
(vii) Rationalization and refurbishment o f accomniodation, fittings and equipment to accommodate the
new processes and programs.
3. Sector issues to be addressed by the project and strategic choices:
The Project would address most o f the sector issues identified above through an integrated reform program
which targets strengthening the institution through organizational and management reforms, improving the
s k i l l mix and developing the level o f existing capacity, re-engineering o f operational processes and systems,
and introducing modem and automated risk based tax systems that would reduce the contact o f tax payer
and tax official to minimize corruption.
The strategy i s to restructure CBR along functional lines and have an integrated tax administration over the
long term. Integration o f different types o f taxes will provide taxpayers with a single point o f access and
they would benefit from simplified procedures that have been proven intemationally to increase compliance.
In addition, comprehensive multi-tax audits will reduce the frequency o f visits to taxpayers. Moreover,
streamlined training and capacity building will allow the CBR to deploy staff in a more flexible manner.
Merging o f direct and sales tax will be phased over a realistic period considering legal, political,
geographical, taxpayer type, and revenue implications.
A number o f key strategic choices were faced while planning the project and include the following:
0
Initially, it was considered that CBR would be made independent and a new Pakistan Revenue
Authority would be established. However, the choice o f keeping CBR within the Government
set-up while providing it with necessary autonomy to operate and take decisions with respect to
hiring, remuneration, placement, promotion and other day to day tax implementation issues, was
-10-
made. This was decided considering the international experience with similar structures and their
implications for reforms.
CBR as a strategy decided to have a phased approach to reforms where ‘pilots’ are being
implemented in key strategic areas, as against implementation o f a program at the national level.
Establishment o f LTU and MTUs was widely appreciated by the stakeholders including and most
importantly private sector businesses. This approach was chosen as it was regarded as an
internationally accepted and successful method o f implementing large scale public sector reforms.
This also has a demonstration effect where successes gamer greater support for reforms.
CBR also decided to have a functional based organizational structure instead o f the tax type. The
approach would be implemented over a number o f years. A pilot ‘Large Taxpayer Unit’ has
already been implemented which brings income and sales tax amongst other functions such as audit
under one window. This model would gradually be replicated in all major cities o f the country. In
addition, CBR has created positions o f functional members at the senior management level and has
recruited private sector professionals in these positions.
One o f the key choices was to build the reform momentum and gain internal buy-in prior to
initiating the reforms. This was carried out through a number o f ‘Change Management’ workshop
and face to face discussions with staff as well as broader discussion with stakeholders.
C. Project Description Summary
1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown):
The proposed Project will support the Government revamp the tax administration system. I t would support
initiative to redress major shortcomings in tax administration through investment in human resource and
information technology, modernizing collection and audit procedures, fostering voluntary compliance, and
strengthening the institutional framework for tax enforcement. This proposed Project has funding support
in the form o f a grant by DFID.
The Government i s committed to reform institutions through incentives and accountability to breakout from
a vicious cycle o f high rates, predatory administration, tax evasion and low revenues to a virtuous cycle o f
lower rates, equitable tax structures, fair administration, voluntary compliance and higher revenue. CBR
reform i s an important pillar o f Government’s broader strategy for reforming public sector institutions.
Similar reforms have also been initiated at the State Bank o f Pakistan, Securities and Exchange
Commission o f Pakistan, WAPDA, and the Office o f the Auditor General. Additionally, the Government
has also launched a wider Public Sector Capacity Building initiative with the Bank’s assistance.
As i t s commitment, the Cabinet approved the reform strategy for CBR which allowed it to prepare a
comprehensive reform program. Moreover, the Government established a Cabinet Committee for Federal
Revenues headed by the Finance Minister, which not only gives CBR autonomy to implement the reform
program but also to institute mechanisms which would sustain the reforms once they have been
implemented.
The proposed Project i s designed around a comprehensive reform strategy and includes the following seven
components: (i)
Management and Institutional Development; (ii)
Improving Revenue Operations; (iii)
Strengthening Revenue Services; (iv) Creating a Tax Compliant Culture; (v) Adopting Responsive I T
Systems; (vi) Infrastructure Up-gradation and Development; and, (vii) Project Management and
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Implementation. Within these components training, consultant services for business process re-engineering
and information technology will also have DFID financial support during implementation.
(i)
Management and Institutional Development
The CBR’s human and institutional development strategy w i l l support and enhance the broader tax reform
strategy by driving:
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Strategic changes within CBR’s organizational structure;
Transformation o f the organization’s culture & ethos; and,
Development o f sound people-management policies and procedures.
(ia) Organization and Policy
CBR headquarters i s currently organized on a hybrid basis with excessive line functions reporting
to the Chairman. At the field level, direct and indirect tax administration are totally separate. The
direct tax administration i s based wholly on the geographic distribution o f taxpayers with multiple
tiers o f decision-making and supervision. A service function and program i s lacking. Appropriate
structures to deal with large taxpayers have only recently been introduced on a pilot basis.
Government rules and regulations do not provide sufficient administrative and financial flexibility
for an eficient management o f i t s operations. CBR does not have the necessary discretion to
re-allocate budgeted funds within main appropriations to react to changing expenditure needs.
This subcomponent will support activities aimed at moving from a tax-type to a functional
structure at CBR headquarters and in the field offices. Activities would include streamlining the
management structure at CBR headquarters and consolidating the fragmented office network for
income tax and sales tax administration into twelve regional tax offices (RTOs). A formal annual
planning process will be introduced and the performance measurement system will be revised and
broadened. The subcomponent will also assist inreviewing the requirements for more financial,
functional, and administrative flexibility and developing related accountability mechanisms. I t also
aims to improve the legal framework for tax administration and support strengthening o f tax policy
capacity. In addition, support to the design and implementation o f a comprehensive integrity
strategy for the CBR will be provided.
(ib) Human Resource Development
This subcomponent addresses the following core areas o f human resource development:
(1) Human Resource Management: The organization i s significantly overstaffed, particularly
at lower organizational levels. Furthermore, the expectation o f job security i s stronger for
a career untied to performance criteria. This will need to change, especially when more
widespread use o f information technology and reengineering o f business processes take
place during the modernization process. This i s expected to bring about competition for
jobs requiring new competencies and change the operational and administrative
environment o f CBR.
This subcomponent will support: workforce rationalization; creation o f new and
redefining existing professional positions to meet new functional and operational
requirements; development o f a human resource management policy framework; and,
adoption o f new pay and benefits regime, including merit-based pay and incentive systems.
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(2) Training: Delivery: The current training system i s not geared to address the existing
training needs o f CBR. For most staff, there i s no explicit linkage o f training to career
advancement or promotion, and neither training needs analysis i s carried out by the local
offices o f CBR. Finally, lack o f performance evaluation leads to a haphazard application
o f an essentially supply driven training. The CBR in-house study on "Traning needs
analysis" recently published needs to be implemented.
This would support: (i)
development o f a new CBR training strategy to meet the
requirements o f the new functional organization, including the core area o f management. I t
would also help CBR establish an integrated training directorate for tax and customs
administration; (ii)
coordinate preparation and supervision o f training needs analysis and
prepare requisite training plans for all staff as a part o f the annual performance evaluation
process; (iii)
prepare annual training plan focusing on specific training in functional areas
for upper-level staff and management skills for officers; (iv) offer refresher courses for
technical staff and officers; (v) organize an internal induction training, not through the
Civil Service Administration, focused exclusively on content germane to tax
administration; (vi) provide advanced training on an assessed needs basis, and establish
facilities so that courses can be carried out on a decentralized basis; and, (vii) allocate
budget resource to the training function.
(3) Imurove Professional Ethics: A Code o f Conduct and Ethics need to be implemented in
addition to the general code o f conduct that applies to all government officials promulgated
in 1964. Because the working environment o f CBR differs from that o f most public
servants, experience from other countries suggests that development o f a separate code for
routine revenue administrative work i s needed. Timely enforcement i s a critical element in
implementing such codes. In CBR, there are protracted delays in processing cases o f
corruption caused by understaffing, which will need to be remedied.
This supports development o f a special code o f conduct and ethics through: (i)
training o f
managers to brief staff on i t s contents, their rights and responsibilities, and enforcement
procedures; (ii)
training o f staff assigned to investigate inquiries into staff alleged breaches
o f the code; and, (iii)
development o f clear guidelines for managers and supervisors on how
to deal with complaints alleging staff corruption.
(ic) Internal Audit
CBR lacks a dedicated intemal audit function to ensure that the business processes established
are properly followed.
This subcomponent will establish a specialized internal audit functions in CBR. I t will set up a
central internal audit office for planning, program direction, procedures, training and evaluation
of the internal audit program throughout the CBR. Field-based intemal audit units will be
established to implement intemal audit plans in the operational components o f customs and
taxation.
(id) Internal Affairs and Vigilance Units
In the current organizational structure there i s no dedicated department in CBR responsible for
the detection o f cases o f collusion between revenue administration officials and taxpayers. In
practice, t h i s has led to a situation where CBR i s confronted with multiple interference and
inquiries from outside agencies, such as the National and Regional Accountability Bureaus, the
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Federal Investigation Agency, and the Investigation Bureau. T h i s has led to questionable
inquiries into CBR’s daily operations, as quite often issues raised during such investigations are
highly technical in nature and the probing agencies do not have the necessary competency and
knowledge. Regarding disciplinary measures against corrupt officials, the main responsibility
lies with the Director General o f Inspections and the Director General o f Inquiries. In practice,
there are substantial delays in enforcing disciplinary measures and a lack o f focus in the
organization on expediting processing corruption case.
This subcomponent will assist in creating a specialized intemal affairs function and vigilance
function at CBR headquarters. These functions will be responsible for investigating allegations
against CBR officials and detecting corrupt practices and corrupt officials.
(ie)
Change Management
This subcomponent will support activities aimed at developing and implementing appropriate
strategies for managing organizational change at all levels o f the tax administration, including
communication strategies to explain the rationale and potential impact o f the planned changes to
all managers, officers, staff, taxpayers and other stakeholders.
(ii)
Improving Revenue Operations
CBR will reorganize itself to meet the management and functional requirements and challenges o f a modem
tax administration system. The long term vision o f CBR provides for a functionally integrated tax
administration system; moving to such a structure will avoid the present duplication o f functions such as
audit, collection and enforcement across departments. Managing direct and sales taxes separately makes it
more expensive to comply and more difficult for taxpayers who have multipletax dealings to comply. The
integration will provide taxpayers with a single point o f access, enabling them to easily obtain all the
information required to assess their tax liabilities. However, recognizing the challenges o f the change
process during the transition period, CBR will maintain the separation o f function by tax type in the initial
reform period with the aim o f gradually reducing this over time, while carefully considering the legal,
political, geographical and revenue implications.
Inorder for CBR to make this major reform program a success, it will ensure that i t s organizational
structure supports the procedural and operational changes arising from the reforms. The following are
some o f the main subcomponents that will be addressed by the proposed project.
(Ea)
Direct Tax
O f the three revenue administrations, Direct Tax i s the one which has the greatest need o f reform.
I t s operations are performed through costly, inefficient and ineffective processes and procedures at
96 locations by more than 750 circles. The collective revenue yield o f such operations has been
chronically poor and grossly short o f potential. Mutual dissatisfaction o f taxpayers and o f the
CBR’s staff i s persistently high, under current operations.
The project will support government’s planned reform o f direct tax by: flattening the organization
structure, improving the identification and registration process, specializing the handling o f large
and medium taxpayers affairs, establishing a tax-payer self-assessmentlself-declaration approach,
maintaining a taxpayer database containing all assessment and payment data, establishing
capability to quickly detect taxpayer non-filing and non-payment.
Twelve Regional Tax Offices (RTOs) will be the focal points for all Direct Tax operations in the
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mid to long term (except for large taxpayers, which will be handled by LTUs). The functional
program areas to be carried out at each o f the 12 future RTOs are Taxpayer Facilitation (includes
Registration); Taxpayer Audit; Collection & Enforcement; Investigation o f Tax FraudEvasion;
Information Processing; Human Resources; Information Technology; and Legal.
Direct taxes will require use o f information technology to support several functions. The direct tax
organizational units (e.g., LTUs and RTOs) w i l l require appropriate hardware, system software
and network support. In addition to the hardware, this subcomponent envisages the development o f
following software systems:
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Taxpayer registration system: This system will register taxpayers for direct taxes. Currently,
CBR i s using a National Taxpayer Number for all taxpayers. However, for ease o f data
capture from data sources outside CBR, it i s recommended that the CBR uses National
Identification Card (NIC) number for individual taxpayers and continue to use NTN for
business taxpayers.
Income tax information processing and accounting system: This system will process a filed
tax return and update a taxpayer’s account. The Tax Management System (TMS) developed at
the MTU can be expanded to provide this functionality.
Case tracking Systemfor collection/enforcement: This system will track a case and provide
its status (received, closed and inventoried, etc.) as it proceeds through the system.
Computerized audit selection system: This system will select cases for audit based on audit
selection criteria established by member audit.
Among the most important project strategies and initiatives for Direct Tax are:
(a) Establish more specialization units for handling o f direct operations for the country’s
largest taxpayers;
(b) The operations o f the LTU will serve as “a model office” for replication to CBR’s
operations elsewhere;
(c) Two more LTUs will be established in the mid term. The three LTUs will be the focal
point in the future for all operations applicable to the country’s largest taxpayers;
(d) Decentralize operations for other taxpayers based on functional structures;
(e) The operations o f the MTU w i l l serve as an interim “model office” for the re-engineered
operations o f Direct Tax and w i l l be replicated to other sites across the country in the short
term;
( f ) Based on the results o f the Lahore “model office test”, five more MTUs are already
scheduled to be established
(g) In the medium to long term, the MTUs will become part o f the 12 Regional Tax Offices
(RTOs), where Income and Sales Tax operations will first be co-located, and in the long
term, integrated.
(h) Several data processing operations for Income Tax under a universal self-assessment
system will be established to process income tax returns, tax payments, and other
documents. Among the numerous operations’ requirements for data processing centers are
rapid processing o f all documents; electronic documentation o f accurate information for
the integrated tax information system’s databases; and “capture” o f key data for taxpayer
control and enforcement - risk-nianagement information; identification o f non-filers and
stop filers; verification and matching o f 3rd-party information for audit, collection &
enforcement; etc.
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In order to achieve the objectives stated above, this subcomponent will support a series o f reform
initiatives including: (1) legal authority; (2) organization and management; (3) business processes
and procedures; (4) human resources (including training and recruitment); (5) facilities and
infrastructure; and, (6) information technology.
Sales Tax and Central Excise
(iib)
The Federal Sales Tax Act, 1990, enables the federal government to impose ST based upon the
value added at each stage o f selling o f the goods. Internationally, t h i s form o f taxation i s known as
Value Added Tax (VAT). At present, there i s a universal rate o f 15 percent applied to most goods.
Exemption i s provided for a number o f goods including most basic foodstuff, drugs, computer
hardware and software, selected agricultural equipment, commercial ships and aircraft. Exports,
sales to diplomats, and supplies in the Export Processing Zone are all zero-rated. The ST does not
apply to transactions within the Federally Administered Tribal Zones (FATA) and Provincially
Administered Tribal Zones (PATA). An Act o f Parliament cannot be enforced in these districts
without agreement o f the Provincial Assembly and Governor. Agreement to enforce the Federal
Sales Tax Act has not been obtained. The constitution empowers the Federal Government to levy
excise duties other than on liquor, opium or narcotics. The most pressing issue with ST and excise
duties that this component will address i s the limited number o f ST registrants and their poor
compliance - about 88,000 registered units.
This component will also review the number of goods and services that currently receive an
exemption. To bring ST in Pakistan in line with general international practice, the share o f ST
should be distributed equitably and requires increase in the scope o f goods and services liable. ST
will also be developed to allow for tax input credits for office equipment, office supplies, building
materials, electricity consumed and other items used to support taxable activities. The input tax
claims and ST refunds system will be reviewed and streamlined. Sales taxes will need use o f the
taxpayer registration, case tracking and computerized audit selection systems discussed above. In
addition, sales tax information and communication system would be developed to process and
reconcile a filed sales tax return.
Customs
The long-term objectives o f the customs reform component are to modernize import and export
clearance procedures, and related procedures that impact upon trade facilitation, in accordance
with internationally accepted principles and methods and will also improve revenue collection. The
buildingblocks o f the CBR's reform strategy in customs are based upon the following principles,
guidelines and procedures. The application o f the principle o f customs controls will allow the CBR
to:
(iic)
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focus on high-risk areas and therefore ensure more effective use o f available resources;
increase ability to detect offences and non-compliant traders and travelers;
offer compliant traders and travelers greater facilitation; and,
expedite trade and travel.
Risk management has been universally adopted as a key principle in customs procedural reform.
According to the General Annex o f the Revised Kyoto Convention, "Customs controls should be
carried out on a selective basis using risk management". The Chapter defines risk management
as -- the systematic application o f management procedures and practices which provide Customs
with the necessary information to address movements and consignments which present a risk
techniques to the greatest extent possible.
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Customs will move progressively away from “blanket” controls and detailed procedures that
impact on all or most importers and exporters, to interventions that are highly targeted towards
identified risk shipments, traders and goods.
Reforms will also introduce self-assessment and provide the speedy clearances to those that have
proved and maintained their dependability. Face-to-face contact will be limited and CBR plans to
strictly limit access by customs agents to secure accommodation. Plans call for development o f a
system enabling electronic preparatiodsubmission o f declarations, internet/EDI transmission,
selection o f declaration for audit based on risk analysis, and electronic assessmenthelease.
(iii)
Strengthening Revenue Services
(iiia) Audit
At present, there are different audit schemes for different taxes, and the development o f audit .
programs varies both in quantity and quality. In certain cases, individual employees have
developed advanced control programs and audit case selection systems. Rewards are based upon
fulfillment o f the goal set for collection rather than the number and quality o f audits.
Some o f the problems plaguing the audit function include: lack o f cost effectiveness; non
differentiation o f the various forms o f control; audit experiences not extracted and distributed
throughout C B R the auditing process characterized by a bargaining process between the
auditor/collector and the taxpayer; and, the selection o f cases for audit not carried out according to
a structured risk assessment - carried out randomly.
Selection o f cases for audit, under risk-assessment systems i s very difficult anywhere in the world.
A great deal o f work still needs to be done to establish a viable system in the CBR, and the time i s
now to do so, before the next round o f tax returns i s filed under USAS. Despite the need for
transparency in tax administration, this data should not be shared with taxpayers and tax
practitioners as i s the practise world wide.
The project will support the establishment o f a Tax Audit Function as a separate functional stream.
It will also develop an automated approach to audit-case selection based upon consideration o f the
risks o f under reporting and underpayment o f taxes and case distribution among auditors with
specialized functions. The audit function will be strengthened through independent quality reviews
and audit parameters will be imbedded in the Information Management system, allowing the system
to identify returns/filings for further scrutiny.
(iiib) Voluntary and Enforced Collection
The establishment o f an effective collection and enforcement function i s a critical element o f any
tax administration reform. Accordingly, CBR will establish a Collections and Enforcement
Function at the head office which will be responsible for providing direction, developing policies
and procedures and providing support to regional operations. The Function will be responsible for
identifying non-filers and taking appropriate action. I t will also assist in updating registration
records. To summarize, the Function will be responsible for the following activities:
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Enforcement / Collection;
Monitoring of filing and payments including withholding taxes;
Demand outstanding returns;
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Recovery o f outstanding taxes;
Imposing interest and penalties;
Conducting intemayextemal surveys; and,
Collecting data on taxpayer assets, to aid eventual enforced collection.
An integral part o f the Collections and Enforcement Function will be the development o f a
computer system and tax database that w i l l facilitate the collection o f taxes. This will issue
notices, calculate interest and penalties, and identify non-filers. It will interface with external
sources o f information like banks and utility companies to identify non-filers or stop-filers and to
facilitate collection. Unlawful practices at the taxpayer level, are addressed under ‘collection and
enforcement’ in the section ‘creating a tax complaint culture’.
(iiic)
Appeals and Dispute Resolution
Improved Revenue services will also focus on appeals and dispute-resolution processes. The
Appeals and Dispute Resolution sub component will address development o f systems, procedures
and processes which must be perceived as fair, expeditious and transparent by all interested
parties. Highlightedw i l l be a single, two-phase avenue o f appeal for all kinds o f taxes. The first
phase will be at an administrative, but quasi-judicial level, followed by a judicial level, if
necessary. The national appeals and adjudication system will be uniformly administered across the
different tax disciplines.
This sub component would also support pilot efforts to meet the objectives described above. For
example, the soon to be established pilot “Dispute Resolution Complex” at the present Sales Tax
(East) Collectorate in Karachi will test functional specialization o f re-engineered dispute resolution
processes. This pilot proposes to improve:
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Alignment o f tax laws;
Infrastructure and facilities;
Training and tenure posting o f adjudicating officers;
Protection from extraneous influences and investigating agencies;
Countrywide computerization o f Adjudication Collectorates;
On-line access o f the adjudicating officers to data on valuation, imports-exports, local
production o f goods, informatiodprofiles o f taxpayers, case laws, latest rulingljudgments
o f superior courts; and
Computer-generated adjudication orders.
(iiid) National Intelligence and Risk Management
At present, there i s inadequate focus on intelligence and risk management and there i s limited
operational capacity. This function however, becomes highly critical with the introduction o f
Universal Self Assessment and involves much more than simple data collection.
This sub component provides for creation o f an intelligence-gathering function at the national level
which will cover and support all operational areas o f the three Revenue streams at the field level Direct Tax, Sales and Excise Taxes, Customs, Exports. A national risk-management function will
be co-located with the intelligence function to provide similar support field operations. The
risk-management function will design automated systems and databases based on ratiodtaxpayer
profileshdustry and goods “profiles”/etc. to gather, analyze and identify cases for audit and
enforcement which have the greatest risk for revenue loss to the Government. The intelligence
function will focus heavily on creation and use o f automated databases for the identification and
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preparation o f cases for field investigation which meet criteria for potential Wcustoms fraud or
evasion.
(iiie)
Customs and Tax Frauds
Customs and tax frauds pose a serious economic, industrial and social threat to Pakistan. CBR
under the project will introduce measures that would protect against these threats.
This subcomponent would support creation o f an integrated Tax & Customs Fraud function with
specialists to investigate alleged offenses by taxpayers/traders under the relevant legislation and
recommend for prosecution those confirmed cases, after careful, thorough, documented and
professional investigation. Together with a highly-qualified, highly-trained staff o f investigators,
the function will be provided with well developed, integrated I T and communications systems.
This highly-specialized function does not yet exist in the CBR and will need to be established.
Assistance will be sought from Revenue and Customs Investigation organizations o f other
countries, since the CBR’s investigation staff will also be required to establish liaison with
international and national organizations to facilitate mutual support and assistance in their
respective investigations.
(iv)
Creating a Tax Compliant Culture
(iva)
Taxpayer Education and Facilitation
Tax facilitation and education i s currently minimal and will need to be strengthened considerably if
universal self-assessment requiring taxpayers to maintain transaction documentation to be
successful. The tax education and facilitation function will include a strong and well coordinated
communications program promoting the development o f greater compliance and a user friendly,
supportive interface between the CBR and corporate and individual taxpayers. I t will also
introduce a program outlining the principles o f a good tax administration system (transparent, fair,
automated, simple and cost-effectiveness); develop a quality assurance monitoring program; and
introduce easy-to-comply-with forms and document requirements that are compatible with a
computerized operation.
The tax administration system will provide taxpayers with a single point o f access, enabling them
to easily obtain all the information required to assess their tax liabilities. This will be instigated
through the establishment o f 60 to 75 Taxpayer Facilitation Centers (TFCs). A key objective o f the
TFCs will be to promote tax facilitation through the promotion o f self-assessment for tax liability.
The TE & F will research, plan, design, develop, implement and manage programs to elicit ideas,
opinions and feedback from the taxpayers, TE & F staff, and other stakeholders. I t will establish
an ongoing monitoring and quality assurance program involving the launch and facilitation o f
forums between appropriate internal and external stakeholders.
(a) Communications Program: The quality o f service that taxpayers can currently access
varies across Pakistan. The reform strategy will address this inequality and raise service
standards across all areas. A key component o f this effort will be the application o f
modern basic communication principles, ensuring that taxpayers have access information.
Explanatory literature will also be developed and updated regularly. The literature
(publications, brochures and booklets) will cover dissemination o f laws, rules, procedures
and changes from time to time particularly with reference to the universal self-assessment
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and record keeping requirements.
(b) Intemet Facilities: The information super highway, or the Intemet, i s an important
driving force behind the new work methodology, enabling improved communications both
between CBR and the taxpayers as well as within CBR. By making I T an integral part of
the organization, CBR will revolutionize the way it functions and manages i t s relationships
with taxpayers by reducing the interaction with taxpayers.
(c) Call Centers: Considering evolving demands, a call center will be established to
facilitate taxpayer contact through e-mail, letters, faxes and telephone calls. The potential
to successfully introduce this component o f the TE 8z F function i s high. At present, ‘hits’
on CBR’s web-page show that a number o f taxpayers are willing to use modem @chnology
to an extent that would not otherwise be possible were contact restricted to face-to-face
consultations. Moreover, the call center will answer both internal and external questions
and queries. As such, it will also be used as a communication tool to unify tax
administration procedures and practices within the CBR itself.
(ivb) Taxpayer Identification and Registration
The ability to identify taxpayer’s revenue activities i s an essential element o f a modem tax system
and begins with registration. CBR’s intent i s to have a highly accurate taxpayer registration
system for all tax purposes and for all taxpayers. This will: (a) facilitate exchange o f data; (b)
avoid duplicate and erroneous registrations; and, (c) establish a database o f taxpayer information.
Data scrubbing exercises have already been conducted by the MTU in Lahore to clean up and
organize National taxpayer Numbers o f taxpayers in i t s jurisdiction; this exercise will be extended
to national scale with project rollout. Third party information will be matched against information
declared by each taxpayer to ensure full and correct reporting and payment o f taxes. Interfaces
will be built with such external reporting sources to capture appropriate data.
(v)
Adopting Responsive I T Systems
The information technology strategy will help the CBR transform the way it functions and supports it’s
reform objectives. The strategy will be driven by selected CBR officers from the tax administration and I T
departments, supported by tax specialists and other specialists covering areas such as audit, HR,
information communication technology (ICT) and taxpayer education.
Therefore the ICT strategy will be based on the following principles:
Determining a technology path that will support CBR’s I C T needs o f today and i t s future
objectives considering i t s users’ skill level, and the need for a practical approach to bring
technology to users; and,
Providing technology to enable CBR to achieve its revenue and reform targets by making
procedures and their application transparent and providing easy access to timely and accurate
information for decision making.
The goal o f the ICT strategy i s to move from a highly manual to an automated environment in which
computers are used to facilitate decision making by various functional and technical teams/ authorities. To
support this, information will be made available at all strategic points within the organization to:
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Improve management control to levels approximating those experienced in industrialized
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countries;
Increase transparency o f tax administration;
Reduce interaction with taxpayers in day-to-day operations;
Manage information for broadening the tax-net, increasing revenues, and facilitating trade;
Identify and adopt international best-practices; and,
Allow for multi-directional communication under the electronic signatures ordinance, 2002.
Despite substantial past investments in information technology by CBR, desired results have not been
achieved because standard I T development methodology has not been followed. I T project management
has been inadequate with almost no preparation for a user interface, little management ownership and
isolated systems development. Moreover, the development o f I T systems in the past has proceeded in an ad
hoc and unplanned manner so that most departments operate stand-alone modules that are not integrated
into the main system.
Learning from these previous mistakes, CBR’s I T strategy includes a long-term harmonized information
management structure that provides complete, accurate, and up-to-date information, which i s delivered in a
useful manner and at a reasonable cost. The I C T strategy moves away from manual systems to
independent PC L A N s and enterprise-wide, network-based clients. It will move processing work to end
users’ desktop while maintaining shared resources, thus reducing the load on centralized resources.
Finally, the server technology will supply cost-effective computing and will provide the foundation for
swift, effective and efficient execution o f all tax administration tasks. This will require that the entire
process and work culture i s re-engineered. Experience indicates that organizational capacity in terms o f
human resource plays a critical role in successfully deploying a new business strategy using information
technology.
Information input, output, and storage requirements are a basic ingredient in any systems planning across
the CBR, no less than transaction processing. Data management will thus be a key consideration in the
Information Systems Planning process. A decision on the extent o f storage o f previous years’ data will be
made by all relevant stakeholders as part o f a data management plan, prior to the commencement o f any
large data conversion exercise. The storage, retrieval and cataloging o f these records, in electronic form
preferably, will involve a coordinated plan starting from changes in tax law/regulation to design o f the
physical systems for movement o f paper, all the way down to design o f paper forms for annual returns
going forward; a study and commensurate optimization along the entire chain o f information flow in
physical and electronic form i s called for.
The CBR will maintain a two-tier M I S system which will provide all statistical information and tools
necessary to support multi-dimensional revenue analysis and predictiodprojection capabilities for CBR’s
national budget exercise. The central M I S system will also provide modules to capture and process all HR,
financial and budget-related information including asset management.
A Central Information Depository System will also be developed providing easy, on-line access to all
relevant acts, all SROs, case history, transaction profiles, sector profiles, revenue profiles, industry
profiles, manuals, rules, procedures, publications and announcements. Currently, CBR employees do not
have easy access to this information impacting their productivity. The provision o f this repository would
enhance employee productivity and improve working conditions.
(vi)
Infrastructure Up-gradation and Development
CBR’s workforce tolerates working conditions which hinders their efficiency considerably. To address this,
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CBR will improve the physical worlung environment for its employees. As re-engineering and
computerization o f working processes (and the reduced number o f tax offices) leads to reductions in the
number o f s t a f f required, the per-capita cost o f providing better working conditions becomes more
manageable. Better conditions are likely to translate into further improvements in productivity.
Office modemization so far i s mainly focused on a small number o f pilot sites. There i s a basic need to
develop a comprehensive accommodation modemization plan. This plan should be developed
simultaneously with the reorganization o f the tax administration as any delay in the latter could mean
significant additional costs in independently implemented capital investments and rehbishments. In
addition, offices will need to be consolidated and in the case o f sales tax and direct tax co-located.
Currently, substandard short term leased accomodation i s not conducive to carrying out the business o f
revenue administration. Finally, the ability o f the CBR to lease or rent accommodations o f appropriate
quality i s compromised but the inability o f CBR to gain the necessary autonomy over managing i t s
infrastructure required to remedy these issues.
This subcomponent supports: the preparation o f a comprehensive accommodation modemization plan in
line with the roll-out o f the functional organization; the ownership o f more buildings by CBR as part o f the
accommodation reform process; opening up the possibility o f entering into long-term leases for office space
where major renovations have been carried out; gaining assurances for the Public Works Department that
infrastructure will be routinely performed in a timely manner; granting sufficient authority to CBR so that
needed infrastructure for the roll-out o f the LTU, MTU and RTOs i s available.
(vii)
Program Management and Implementation
This component would finance a structure for implementing the project, including: a Project Management
Unit (PMU) which would provide overall coordination as well as take responsibly for managing the
incremental changes necessary to effect implementation o f each component and related activities o f the
Project. The P M U would also be responsible for reporting on Project implementation and manage all
disbursement, procurement and financial management activities under the project and according to Bank
Guidelines.
An integral part o f the P M U responsibilities will be establishing the monitoring and evaluation component
o f the proposed project. The P M U has established performance indicators detailed in the Project
Implementation Plan (PIP) to monitor impact o f the project and measure i t s success. The key areas that
will be monitored include; the ratio o f revenue collected to GDP, taxpayer satisfaction surveys, audit
enforcement, labor efficient processes, the use o f I T and the improved organizational structure. In each o f
these areas the P M T w i l l prepare a baseline scenario with objective and subjective performance targets.
Project Cost Detail
Component
Management and Institutional Development
Improving Revenue Operations
Strengthening Revenue Services
Creating a Tax Compliant Culture
Adopting Responsive I T Systems
Infrastructure Up-gradation and Development
9.29
92.72
6.63
6.26
3.65
24.00
- 22 -
6.2
62.2
4.4
4.2
2.4
16.1
7.90
80.20
5.64
5.33
3.30
18.03
6.3
63.7
4.5
4.2
2.6
14.3
1
Program Management and Implementation
Preparation Advance
Total Project Costs
Front-end fee
Total Financing Required
I
3.05
3.40
149.00
0.00
149.00
1
I
2.0
2.3,
100.0
0.0
100.0
1
I
2.60
2.90
125.90
0.00
125.90
1
I
2.1
2.3
100.0
0.0
100.0
2. Key policy and institutional reforms supported by the project:
The proposed project supports the overall policy reforms o f the Government to improve delivery o f
taxpayer services, raise tax revenues, and thereby improve enabling environment for private sector
development. I t will also have broader implications for civil service reforms as discussed in the following
paragraphs.
3. Benefits and target population:
If the outputs o f the project (e.g. an autonomous CBR, improved tax collection processes, enhanced
voluntary compliance and improved audit) are successfully implemented, then the major benefits from the
project would be: (i)
qualitative improvements in tax administration in terms o f effectiveness and
transparency; (ii)
more equitable treatment o f taxpayer, and reduction in taxpayer’s cost o f compliance
with tax laws; (iii)
measurable improvement in monitoring and control (financial and physical) o f imports;
(iv) increased tax revenues; and, (v) improvement in the enabling environment for private sector
development.
The immediate target beneficiaries would be taxpayers at the household and corporate levels, and tax
administration departments and collectorates. Measures included in the project would also encourage the
private sector to move from the informal to the formal sectors. Businesses would be encouraged to grow
and pay their fair share o f taxes without undue hassle and time spent complying with regulations. The
recently completed Investment Climate Assessment (ICA) for Pakistan revealed that this was one of the
major constraints to business growth and development.
The proposed project will also have the following secondary benefits: (i)
for the first time an attempt
would be made to address corruption, inefficiency o f public administration, and governance issues in one o f
the most critical government agencies; (ii)
test methods to address problems that plague the whole o f
Pakistan’s public administration; and, (iii)
generate knowledge that can be a guide for Government’s
broader civil service reform.
The Bank’s recent report, ‘A Framework for Civil Service Reform in Pakistan’, supports the proposed tax
administration reform process on account o f i t s demonstration effects for undertaking broader civil service
reforms. Introducing increased efficiency in raising tax revenue implies that the government would reduce
the amount spent on tax administration and reduce the need for skilled managerial resources in this area.
If successfU, the Project targets to raise government revenues from a current base o f Rs.5 18 billion to
Rs.960 billion over a period o f five years (based on revenue projections done for purposes o f cost-benefit
analysis as mentioned in Annex 4). This would go a long way to reduce the budget deficit, reduce the
government’s reliance on non-tax sources o f income and allow greater fiscal space for pro-poor budgetary
allocations.
- 23 -
1
I
4. Institutional and implementation arrangements:
(a)
Institutional arrangements:
(i) Executing Agency: The Central Board o f Revenue (CBR) will be the implementing agency.
The new Chairman o f CBR i s fully committed to undertake the reforms. Private sector
professionals were inducted as members to head h c t i o n a l areas, middle management i s being
trained in change management, new qualified people are being inducted from outside, and a
restructuring team o f CBR staff members was selected to spearhead the reform internally. To
ensure sustainability o f reforms, a Cabinet Committee for Finance and Revenues (CCFR) headed
by the Finance Minister was created and the Board was given a permanent fixed-term tenure,
granting CBR greater autonomy from the government. CBR, through CCFR was also given
financial and managerial autonomy on staff recruitmentkompensation and investments in training
and facilities for the purpose o f institution building. The Chairman o f CBR, and the Board would
be responsible for overall implementation o f the project, with each member responsible for
implementation o f components within hisher functional area.
(ii) Proiect Management Unit (PMU): The unit has been constituted and i s operating under
Member Policy and Restructuring. The member reports to the Chairman. The unit, apart from
several key administration staff will also hire full-time outside consultants to assist in
implementation o f the respective project components. An integral part o f the P M U responsibilities
will be to establish monitoring and evaluation component o f the proposed project. The P M U has
established performance indicators detailed in the Project Implementation Plan (PIP) to monitor
impact o f the project and measure i t s success. The key areas that will be monitored include the
ratio o f revenue collected to GDP, taxpayer satisfaction surveys, audit enforcement, labor efficient
processes, the use o f I T and the improved organizational structure. In each o f these areas, the
P M U will prepare a baseline scenario with objective and subjective performance targets.
(iii)Accountinp financial reporting and auditing arrangements: Project records and accounts
would be maintained by the P M U to reflect, in accordance with sound accounting practices, the
operations, resources, and expenditures for each project activity. The accounts will be consolidated
annually into financial statements for the project as a whole. Supporting documentation will be
made available to Bank missions and independent auditors as required. For expenditures incurred
on the basis o f Statements o f Expenditures (SOEs), all records providing evidence o f such
expenditures will be retained by the P M U until at least one year after the Bank has received the
audit report for the fiscal year in which the last withdrawal from the Credit Account or payment
out o f the Special Account i s made, whichever i s later. Project records and accounts, including the
Special Account and SOEs, w i l l be audited annually in accordance with appropriate auditing
principles consistently applied by auditors acceptable to the Bank, with terms o f reference for
auditors and reports approved by the Bank. The Bank’s Financial Accounting, Reporting, and
Auditing Handbook (FARAH) published in January 1995 would be used by the auditors in
accordance with the Bank’s auditing guidelines. Audit reports will be furnished to the Bank, within
four months after the closure o f the Government’s fiscal year.
(b)
Project Implementation:
The Project will be implemented over a five year period. Sub-project rollouts will be staggered to minimize
resource pressure. The basic underlying premise o f the project i s the P M U will be responsible for overall
implementation along with all Members who would be responsible for delivering results in their own
- 24 -
functional areas. Implementation performance will be monitored by the P M U and reviewed quarterly by
Bank Staff (including consultants as necessary) to enable the Bank and the Government to evaluate
achievement o f project objectives. Such reviews would also enable, at an appropriate time, determination
o f the size, scope and timing o f a possible follow-on project and will also feed into the wider civil service
reform initiatives.
D. Project Rationale
1. Project alternatives considered and reasons for rejection:
Pakistan’s fiscal crisis i s deep and cannot easily be resolved. The low level o f tax collection has
jeopardized national goals o f poverty alleviation and improvement inpublic services like health care and
education. Taxes collected are currently insufficient for debt-service and defense. Therefore, the reform o f
tax administration i s one o f the most pressing tasks for the government. There i s little choice but to tackle
this area head-on. Government has therefore made a firm commitment to address these issues. Having
made this decision, there are a number o f ways to achieve this end.
Firstly, some governments around the world have decided to adopt an independent revenue authority model
while others have decided to reform tax administrations that remain more firmly under the control o f the
Ministry o f Finance. Secondly, government could decide to adopt a piece-meal approach to the reform
process deciding to reform tax administration in a modular fashion, evolution rather than revolution.
Thirdly, government could continue to conduct i t s operations on the same basis rather than moving towards
a compliance culture and voluntary self-assessment. Confronted with each o f these decisions, the
government has gone for the later option.
In terms o f Bank instruments that could support such a reform program, the government could have chosen
a Learning and Innovation Loan (LIL), an Adaptable Program Loan (APL) or a Structure Adjustment
Credit (SAC).
(0 Introducing a LIL (Comprehensive Reform Vs Incremental Reform)
A LIL was considered early in the preparation process. A LIL could have been used to pilot
reforms in one key area and then look to scale up the results and develop a larger more longer term
project at a later stage. This approach was rejected for a number o f reasons. Firstly, piece-meal
reforms have been tried in the past and have run against bureaucratic inertia in other areas o f the
CBR. I t i s impossible to expect one small part o f the tax administration to function efficiently
unless the whole culture i s reoriented. Secondly, government felt that in preparing a LIL and then
waiting for the outcomes o f the innovation and building them into a more comprehensive project
would risk losing the reform momentum and allowing the vested interests against reform to regroup
and oppose future reform measures.
Therefore, the main strategic choice made by the Government was to eschew incremental measures
to strengthen tax administration in favor o f a more fundamental and faster-paced change strategy.
This reflected widespread demand for basic reform, the critical need to increase revenues on a
sustained basis, serious doubts that current personnel and compensation policies and practices
would permit meaningful improvements in tax collection, and the less-than-satisfactory results o f
previous remedial efforts. For these reasons, government has decided to reject the LIL approach
and go for an investment loan.
- 25 -
(ii) An Adaptable Program Loan (APL)
An adaptable program loan could be used to support a phased implementation o f reforms. This
would have the advantage that the Bank could review progress during the course o f the reform
program and approve future credit tranches on the basis o f performance achieved during program
implementation. However, govemment preferred to seek a stronger signal o f support to the entire
reform program from the Bank in order to strengthen its reform agenda. Choosing the investment
loan over the APL has greater risks for the Bank in case there i s a change in government,
unforeseen resistance to reform or slow implementation. However, government has shown a strong
commitment and ownership o f this essentially home-grown program and it was felt that an
investment loan would be the most appropriate instrument to support this program. Inorder to
address the down-side risk, the program includes a risk mitigation, exit strategy (see below under
risks).
(iii) A development policy loadcredit (DPL)
The other alternative that could be used to support such a reform program i s the Development
Policy Loadcredit (DPL). Although such an instrument could be used to support a broad reform
program, government felt that it would be inappropriate in this case as; the reform objectives are
very detailed and would not be well-supported by a high level policy matrix, the timeline required
for such ambitious reforms stretches to several years whereas the D P L would traditionally be
disbursed in a shorter time period. Moreover, the D P L approach would not be as efficient to direct
resources to a large number o f complex inter-related tasks.
2. Major related projects financed by the Bank and/or other development agencies (completed,
ongoing and planned).
The State Bank o f Pakistan i s undergoing a similar reform program involving improvements in i t s policies,
processes and systems. The Bank has supported these reforms through (i)
the Financial Sector Deepening
and Intermediation Project, which closed in FYO 1, and during implementation was restructured as a TA
project; and, (ii)
the Banking Sector Technical Assistance Project which i s ongoing and includes broader
financial sector reforms.
The ongoing Financial Reporting and Auditing (PIFRA) Project which has to an extent been able to
restructure the Office o f the Auditor General and Controller General o f Accounts through separation o f the
accounting and auditing functions o f the department. A second phase o f this project i s under preparation
which aims to deepen and broaden the reforms
I
Sector Issue
Project
- 26 -
(PSR) Ratings
l___L
(Bank-finance
lrojects only)
Implementation
Progress (IP)
Development
Objective (DO)
PIFRA-I (CreditCR292 1-PAK)
S
S
3anking
Financial Sector Deepening and
Intermediation
(LoanLN3 808-PAK)
S
S
Banking
Banking Sector Technical
Assistance
(CreditCR3688-PAK)
S
S
Tax Administration
Revenue Administration Refom
Project - Bulgaria; Ln3384S
S
S
Tax Administration
Second Tax Administration
Modemization Project Russian Federation; Ln46880
S
S
Tax Administration
Tax Administration Reform
Project - Jamaica;
CPL-3758OiSCL-3758A
S
S
3ank-financed
4ccounts and Auditing
I
Tax Administration
Tax Administration
Modemization Project HwwY;
CPL-36350;SCL-3535A;
SCPM-363 5 S
S
S
Trade & Transport Facilitation
Trade and Transport
Facilitation Project
(CreditCR3500)
S
S
Public Sector Capacity
Public Sector Capacity Buildinj
S
S
Asian Development Bank
Modemization o f Customs
Administration Project - P A K
Loan33140-01
International Monetary Fund
Tax Administration T A Missioi
February 2003
I (Highly Unsat
- 27 -
ICtOry)
3. Lessons learned and reflected in the project design:
Lessons learned from Bank supported tax administration reforms in LAC, EAP, E C A Regions, and
previous efforts to improve tax administration in Pakistan, highlight the following as success factors: (i)
high level political support and ownership o f program; (ii)
presence o f ‘champions o f change’ within the
tax department; (iii)
market based salary structures and merit based career development prospects; (iv)
special attention to taxpayer facilitation; (v) reduction in the discretionary powers o f tax officials; (vi)
simplification o f procedures for filing and processing o f tax returns; (vii) establishment o f a consultative
process with representative trade bodies in tax administration matters to improve compliance; (viii) training
and greater continuity o f staff in functional postings to develop expertise; and, (ix) adequate counterpart
funding for the project and adequate funding for tax administration; (x) the project involved extensive
consultations with all major donors including IMF, ADB, DFID, USAID that was spread over several
missions and in some cases involved joint missions with IMF, DFID provided donor support in the form o f
a grant.
The project contains the following features to incorporate the lessons learnt:
0
0
0
0
0
0
0
Ownership: Support o f the governments’ own initiative to reform tax administration.
Commitment to reform: Supported at the highest levels o f government, with clear public
commitment o f the Finance Minister to overhaul tax administration. Commitment o f Chairman
CBR and management s t a f f to reforms.
Vision and Strategy: CBR has ‘vision’ o f a renewed tax administration system that i s shared. I t
has already developed a strategy to achieve this vision that has been approved by the Cabinet.
Compliance culture: make efforts to promote tax compliance, through the provision o f improved
services, a self assessment system, as well as implementation o f a strengthened audit effort to raise
the perceived risk o f detection o f non-compliance;
Customer-oriented: a large effort will be made to educate tax payers and ensure their satisfaction
with the tax collection service; and
Incentives: introduce better and performance based staff incentives,
Institutional Arrangements: an established mechanism to ensure smooth implementation and
adherence to Bank guidelines on procurement and financial management.
4. Indications of borrower commitment and ownership:
L o w levels o f tax collection have seriously curtailed Government spending on poverty reduction as well as
on improvement o f public services. Tax reforms are, hence, being singled out as the foremost priority o f the
government and improvements in tax administration categorically promised by the Finance Minister and are
integral to Government’s Poverty Reduction Strategy.
The strength o f the Government’s commitment to tax administration reform i s shown by the following: (i)
approval o f the tax reform program by the Cabinet; (ii)
creation o f CCFR constituted o f key Cabinet
ministers and federal secretaries and headed by the Finance Minister; (iii)
the authorities have visited
abroad and invited officials from other relevant countries to learn from their experiences; (iv) CBR has set
up a Restructuring Team, spffed by the best and the brightest personnel, to be full time counterparts to
implement reforms headed by Member Policy and Restructuring; and (v) set up o f the Large and Medium
taxpayer units; (vi) pilot projects in customs and sales tax areas; (vii) introduction o f renewed human
resource policies, improved salary structure for staff qualified to work in pilots along with a new
performance management system.
In addition, the Finance Minister, in his FY05 budget speech to the Parliament, highlighted Government’s
- 28 -
tax policy and administration reform initiatives and emphasized the importance to further the process o f
administration reforms.
5. Value added of Bank support in this project:
Bank support would provide high-quality technical advice based on worldwide and regional experience in
tax administration; convey credibility and transparency to the reform effort; strengthen the hands o f the
pro-reform elements in the Government and CBR; and promote efficient and effective use o f the resources
supporting the Government’s program. The Bank during the reform process in collaboration with other
donors provided both technical asssistance from IMF and grant financing from DFID.
In addition, the pilot initiatives in tax administration that were supported by the Bank, have started to show
positive results and it would be highly valuable for the Bank to support implementation and replication o f
these reforms on a national basis for the country to realize its full benefits.
E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8)
1. Economic (see Annex 4):
NPV=US$34928 million; ERR = 3 15.7 % (see Annex 4)
0 Cost benefit
0 Cost effectiveness
0 Other (specify)
The main economic benefits of the tax administration reforms can be summarized as:
0
0
0
0
0
0
An increase in government revenues as a result o f widening o f the tax base in terms o f more
taxpayers and more transactions coming into the tax net out o f the grey or underground economy;
(financial benefits)
Improvement in customs procedures aim to reduce the average time to clear customs fi-om the
existing 8 days to 1 day by the end o f the project period. This will reduce the cost o f doing business
since it will reduce the number o f days importers need to borrow from banks to finance imports.
Improvement in voluntary tax compliance rates implying early revenue generation for the
government, saving interest payments and administrative costs related to enforcing compliance;
Reduction in taxpayers’ costs associated with tax compliance;
Economy-wide gains to the private sector as an increasing number o f economic agents operate
under the same set o f rules and taxes, enhancing competition (more level playing field);
Greater predictability o f tax liability and lower costs o f doing business for the private sector.
All the economic benefits o f tax administration are not measurable. In this exercise, only the first four
benefits summarized above have been measured and included in the financial costibenefit analysis. Apart
from the revenue benefits discussed below, the non-revenue benefits measured here are:
0
0
Reduction in number o f days it takes to clear customs means lower interest costs for private sector
calculated using the value o f total imports, average bank lending rate and savings in days to clear
customs.
Improvements in voluntary tax compliance rates means revenue will accrue to the government at am
earlier date than before the reform, which could involve a lengthy period o f audit and possible
litigation. The gains to the government are equivalent to the potential interest earning on increased
voluntary compliance revenue, where the average interest rate on public debt reflects the potential
earnings of revenue. Data on voluntary tax compliance i s available for direct taxes during the last
- 29 -
0
two years, the period o f reforms. I t i s assumed that the improvement w i l l continue at the current
pace for the next 12 years.
Reduction in taxpayers’ costs associated with tax compliance can only be estimated for corporate
taxpayers. It i s assumed that this i s in terms o f reduction in time spent by corporate accountants
and staff to comply with direct tax, sales tax and customs regulations. Various assumptions were
made regarding the number o f accountants, their average salaries and the average time savings.
2. Financial (see Annex 4 and Annex 5):
NPV=US$ 34552 million; FRR = 302.3 % (see Annex 4)
The N P V o f government costs are insignificant compared to the financial and economic benefits o f the
project. Naturally the FRR o f the project i s very high. The financial benefits o f tax administration reform
have been measured in terms o f an increase in the tax/GDP ratio. The CBR tax/GDP ratio rose to a peak o f
12.6 in 1995196, declining in subsequent years and averaging about 11.5 over the last 8 years. An
improvement in the TadGDP ratio above 11.5 has been attributed in the projection period to Tax
Administration Reform in terms o f widening o f the tax base. The financial benefit i s the increase in
revenue due to improvement in the ratio.
The analysis was carried out in a number o f variants. The first i s a standard analysis, in which the future
stream o f revenue i s calculated on the basis o f a GDP elasticity o f revenue o f 1.2. In the second variant, an
alternative process i s used to estimate that stream o f revenue, which will make the present value o f
financial benefits equal the present value o f costs o f the government. In the third variant, the cost benefit
analysis does not take into account revenue benefits o f the government and focuses only on the benefits
included in the economic benefits (excluding the financial benefits). Inthe final and fourth variant, total
revenue projections are the same as in the first variant (based on an elasticity o f 1.2) but the increase in
revenue attributable to the tax administration reform i s limited to the increase in revenues expected from
LTUs & MTUs. For all these variants, the cost o f the project has been treated in two ways. Inthe first,
the analysis has treated the government’s initial investment as equity and the IDA loan as a standard loan,
treating repayment o f the loan over 15 years (instead o f the actual 40 years which would increase the N P V
significantly) as continuing costs o f the government (standard treatment) to calculate the ‘government’s
NPV o f costs and benefits’. As an alternative, the analysis treated the entire cost o f the project as equity
investment and calculated the FRR on the total investment.
Main assumptions:
0
0
0
GDP and inflation projections: GDP rising gradually to 6% in year 7 and remaining constant
subsequently; inflation fixed at 4%
Exchange rate fixed at Rsl$= 57.5
Discount rate for N P V calculations = 5%
CBR tax/GDP derived from GDP elasticity o f revenue o f 1.2; the ratio rises from 11.74 in 2003104 to 13.5
in 2008109.
Fiscal Impact:
The changing structure o f taxation has made projecting revenue a difficult exercise. However, in recent
years the share o f indirect taxes in total revenue has stabilized suggesting that the tax reform has more or
less worked itself through and its impact on revenue shares i s unlikely to be unpredictable. In addition, tax
administration reforms are starting to produce positive results. Hence, revenue projections are less likely to
- 30 -
fail due to failure in projecting W G D P values than due to overestimation o f GDP growth rates. In this
context, it i s useful to note that 2002103 was the first time that the start-of-the-year revenue target (Rs.460
billion) was achieved and the target (Rs.5 10 billion) for 2003/04 was also realized.
The relationship between federal tax revenue and its base (GDP at market prices) has been examined using
regression analysis. The results indicate that the taxation structure has become buoyant overtime. The
elasticity o f tax revenue with respect to GDP has increased from 0.978 in the early 90’s to 1.158 in recent
years. An elasticity of 1.2 has been used here to make projections since it gives accurate ex post projection
results. Revenue projections have been made using IMF projections o f GDP and inflation that are
consistent with the Public Sector Debt Sustainability Framework (PSDSF) for 1998/99 - 2008/09.
3. Technical:
CBR has developed a comprehensive organization-wide information systems plan - focusing on
commonality o f platforms, data structures, data storage, business process, and application design. Use o f
information technology and automation would not only bring efficiencies within the organization but would
help improve transparency in the process of tax collection, reduce discretion and, as a result lower the cost
o f doing business for the private sector.
4. Institutional:
4.1 Executing agencies:
The Central Board o f Revenue (CBR) will be the implementing agency under a Project Agreement to be
entered into between the Bank and the CBR. The new Chairman o f CBR i s fully committed to undertake
reforms. Private sector professionals were inducted as members to head functional areas, middle
management i s being trained in change management, new qualified people are being inducted from outside,
and a restructuring team o f CBR s t a f f members was selected to spearhead the reform internally. T o ensure
sustainability o f reforms, a Cabinet Committee for Finance and Revenues (CCFR) headed by the Finance
Minister was created and the Board was given a fixed-term tenure, granting CBR greater autonomy from
the government. CBR, through CCFR was also given financial and managerial autonomy on staff
recruitmentkompensation and investments in training and facilities for the purpose o f institution building.
The Chairman of CBR, and the Board would be responsible for overall implementation o f the project, with
each member responsible for implementation o f components within hidher functional area.
4.2 Project management:
The unit has been constituted and i s operating under Member Policy and Restructuring. The Member
reports to the Chairman. The unit, apart from several key administration staff will also hire full-time
outside consultants to assist in implementation o f the respective project components. An I T program
manager will be responsible for deputizing for the lead consultant and focusing on technology and
development issues. An integral part o f the PMU responsibilities will be establishing the monitoring and
evaluation component o f the proposed project. The P M U has established performance indicators detailed
in the Project Implementation Plan (PIP) to monitor impact of the project and measure i t s success. The key
areas that will be monitored include; the ratio o f revenue collected to GDP, taxpayer satisfaction surveys,
audit enforcement, labor efficient processes, the use o f I T and the improved organizational structure. In
each o f these areas the P M U will prepare a baseline scenario with objective and subjective performance
targets.
4.3 Procurement issues:
-31 -
Procurement o f goods and civil works will be carried out in accordance with the Bank's Procurement
Guidelines, and procurement o f consultants' services in accordance with the Consultants' Guidelines. The
procurement capacity assessment and applicable procurement procedures are provided in Annex 6A.
4.4 Financial management issues:
Project records and accounts would be maintained by the P M U to reflect, in accordance with sound
accounting practices, the operations, resources, and expenditures for each project activity. The accounts
will be consolidated annually into financial statements for the project as a whole. Supporting
documentation will be made available to Bank missions and independent auditors as required. For
expenditures incurred on the basis o f Statements o f Expenditures (SOEs), all records providing evidence o f
such expenditures will be retained by the P M U until at least one year after the Bank has received the audit
report for the fiscal year in which the last withdrawal from the Credit Account or payment out o f the
Special Account i s made, whichever i s later. Project records and accounts, including the Special Account
and SOEs, will be audited annually in accordance with appropriate auditing principles consistently applied
by auditors acceptable to the Bank, with terms o f reference for auditors and reports approved by the Bank.
The Bank's Financial Accounting, Reporting, and Auditing Handbook (FAMH) published in January
1995 would be used by the auditors in accordance with the Bank's auditing guidelines. Audited Financial
Statements will be fwnished to the Bank, within six months after the closure o f the Government's fiscal
year.
5. Environmental:
Environmental Category: C (Not Required)
5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including
consultation and disclosure) and the significant issues and their treatment emerging from this analysis.
N o t Applicable
5.2 What are the main features o f the EMP and are they adequate?
Not Applicable
5.3 For Category A and B projects, timeline and status o f EA:
Date o f receipt of final draft: Not Applicable
5.4 H o w have stakeholders been consulted at the stage o f (a) environmental screening and (b) draft EA
report on the environmental impacts and proposed environment management plan? Describe mechanisms
o f consultation that were used and which groups were consulted?
Not Applicable
5.5 What mechanisms have been established to monitor and evaluate the impact o f the project on the
environment? Do the indicators reflect the objectives and results o f the EMP?
Not Applicable
6. Social:
6.1 Summarize key social issues relevant to the project objectives, and specify the project's social
development outcomes.
The social issues that emerge from the project are the impact o f the reform on people. One o f the social
benefits i s more equitable treatment o f taxpayer and a fall in the taxpayers cost o f compliance.
The project aims to improve the service delivery through taxpayers' facilitation and aims to educate the
taxpayers to ensure their satisfaction with tax collection service. In this context i t will introduce a program
- 32 -
that i s transparent, fair, simple, automated and cost-effective. Thus, also meeting the social development
objectives.
In order to solve the problem o f overstaffing, the government may also undertake rightsizing. In this
context, the project will be sensitive to the social cost o f the activity for which staff competencies will need
to be assessed. There would be opportunities for retraining staff meeting the requisite competencies or
suitable to be trained. Other staff will be at Government's disposal and would likely be provided
compensation for early retiremenfloluntary Retirement Scheme. In case o f the VRS option, a VRS
assessment will also be conducted.
Custom and tax fraud affect the entire economy (social, economic and industrial). To protect against this
threat the Custom and Tax Fraud Division will be set up that will need to win professional respect and trust
o f i t s counterparts. The building o f trust and breaking down o f barriers i s a slow process and also a social
development outcome. A specialist training program is envisaged towards this objective.
Another social issue'that may arise would be the project's ability to be inclusive in i t s service delivery.
Closely related to this i s the project's aim to minimize contact between taxpayers and tax officials and
reduce discretionary powers of tax officials. This would directly benefit all groups particularly those
groups that do not have access to higher echelons o f powers.
Finally, the project aims to provide a "voice" to stakeholders through the establishment o f the consultative
process with representatives o f trade bodies in tax administration to improve compliance.
6.2 Participatory Approach: H o w are key stakeholders participating in the project?
K e y stakeholders have been involved with the project all through i t s development cycle via a series o f
stakeholders consultation that have been held from the initial stages. Additionally, stakeholder
consultation are in-built into the project and will occur at regular intervals to obtain feedback and improve
the design and implementation.
6.3 How does the project involve consultations or collaboration with NGOs or other civil society
organizations?
Consultations have been held and will be held with relevant civil society organizations as well as trade and
business bodies who are major stakeholders o f the project. One o f the mechanism i s the establishment o f a
consultative process with representatives o f trade bodies (that represent the trade and business
communities). Regular consultations are in-built into the project.
6.4 What institutional arrangements have been provided to ensure the project achieves i t s social
development outcomes?
The social development outcomes are a component o f the the project's outcomes (and not independent o f
the project) hence the institutional arrangement being put in place for the project will also achieve the social
development outcomes.
6.5 H o w will the project monitor performance in terms o f social development outcomes?
The monitoring indicators o f the project will also reflect the social development outcomes. Some o f them
are :
0
0
Taxpayers satisfaction through stakeholder opinion on quality o f service provided (collected
through structured survey conducted)
Impact o f removal o f discretionary powers o f tax officials (reflected through surveys)
- 33 -
0
0
Responsiveness to consultative process (measured by changes brought about as a result o f
feedback)
Public perception o f revenue administration integrity as measured by periodic surveys
-
7. Safeguard Policies:
7.1 Are any o f the following safeguard policies
triggered by the pro’ect .
Policy
--
L
’F
Safety of Dams (OP 4.37, BP 4.37)
Projects in International Waters (OP 7.50, BP 7.50, GP 7.50)
Proiects in DisDuted Areas (OP 7.60. BP 7.60. GP 7.60)*
Triggered
1
0 Yes 0 N o
0 Yes 0 No
Y A P(.Nn
7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies.
This i s a tax reform project and safeguard policies are not applicable.
F. Sustainability and Risks
1. Sustainability:
Prospects for sustainability increase when the Government itself drives a reform program and incorporates
intemational experience and stakeholder feedback in the design. The Government has discussed the reform
program at various levels to ensure stakeholder buy-in. In addition, a clear strategy has been prepared
providing for implementation o f reform measures over the short, medium and long term. The short term
measures have already shown visible and positive outcomes which give strength to the reform program and
improve i t s chances o f being sustainable.
2. Critical Risks (reflecting the failure o f critical assumptions found in the fourth column o f Annex 1):
The project i s classified as ‘substantial risk’. Reforming CBR involves challenging various vested interests
which have existed for decades and have a strong hold in the political and bureaucratic circles. However, if
CBR i s able to capitalize on the government’s commitment to reform as well as the momentum generated
through it own short term measures, it can quickly move forward with the broader reforms before any
vested interests creep-in to slow down the process. There are massive gains to be made for the entire
economy if the reforms are implemented successfully and are sustained in the long run.
The following critical risks can affect project implementation:
Lack of continuous support from the Government due to vested interest: CBR has introduced
several initiatives and i s embarking on a broad based reform program for restructuring o f tax
administration machinery. The reform momentum already generated could slow down if CBR i s
unable to capitalize on the current support for reform from within, related government departments and
other stakeholders. It i s essential that CBR moves forward with timely reforms which demonstrate
concrete outcomes that would be difficult to reverse and to ensure continued support from the
e
- 34 -
government.
a
Insuflcient support to provide the required level of independence and autonomy: Although
CBR has been given autonomy within the government setup through creation o f CCFR, implementation
of CCFR’s decisions can get held up at the ministerial level which may derail the reform process. It
would be important for the govemment to gives its support for ensuring effective implementation o f the
Cabinet Committee’s decisions.
e
Staff resistance to change including opposition from interest groups: Reform implementation
would not proceed smoothly if there i s resistance to reform from within CBR. T o avoid this, CBR has
held quite a number o f change management workshops and has obtained a certain level o f support
which was critical to initiate the reform process. It would be important that similar measures are
integrated into the reform strategy to ensure continued staff buy-in into the program. In addition,
efforts need to be made to provide assurances to staff at all levels o f fair and equitable treatment during
implementation through the change management leadership.
a
Implementation risk: Reform can only succeed with strong ownership and commitment. Delays in
implementation o f the reforms can weaken government commitment jeopardizing the entire reform
process. I t i s important that there i s strong leadership which can guide and oversee implementation.
Professional program managers will need to be inducted into the Policy and Tax Reform team
overseeing the implementation. In addition, there need to be mechanisms built into the reform program
which would gather feedback during implementation to incorporate lessons and ensure continued
support from the stakeholders.
Program not yielding desired resultdoutcomes: This i s always an issue when implementing large
reform projects. To avoid this, CBR has developed a strategy where ‘pilots’ in critical reform areas
would be implemented prior to undertaking institutional restructuring and changes in systems at the
country level. These pilots will enable CBR to form accurate expectations about the results o f reforms
at the country level as well as incorporate feedback into the process. In addition, CBR i s continuously
reviewing international experience o f similar reforms and incorporating the relevant lessons learnt.
a
a
Other safeguard risks -financial management, procurement, social and environment: These
have been addressed.
Risk
From Outputs to Objective
I
Risk Rating
1
Risk Mitigation Measure
Lack o f continuous support by the
Government in policies.
S
Tax reforms have been singled out as the
foremost priority o f the govemment. Approval
o f tax reform program by the Cabinet and
creation o f CCFR among some initiatives
indicating commitment and ownership o f the
reform process by the highest levels o f the
Government.
IContinued political interference.
H
The project provides for the restruring o f CBR
within the Government setup. However, CBR
will have necessary autonomy to operate and
take decisions with respect to hiring,
- 35 -
remuneration, placement, promotion and other
day-to-day tax implementation issues.
Impact o f reforms may not be f i l l y visible
in the initial years and there may even be i
plunge in revenues which could lead to
resistance by vested interests.
interest groups; e.g., trade bodies.
Delays in implementation due to
bureaucratic processes.
From Components to Outputs
S
CBR's existing structure i s deep and highly
bureaucratic and the process o f change will be
long and painful. However, a more efficient and
effective revenue administration model will
facilitate and promote voluntary compliance and
increase overall collection results in the long
run. The "pilots" in critical reform areas,
implemented prior to undertaking institutional
restructuring and changes in systems at the
country level, would enable CBR to form
accurate expectations about the results and
incorporate feedback into the process to achieve
desired results.
S
Key stakeholders, including trade bodies, have
been involved with the project throughout i t s
development cycle via a series o f consultations
and the feedback has been incorporated into the
project. Moreover, input from various
stakeholders will be sought throughout at
regular intervals in order to improvise on the
design and implementation o f the project.
M
Adequate monitoring and established mechanisr
to ensure smooth implementation have been
outlined under the project.
I
Resistance to change by staff causing
problems in implementation o f tax
administration reforms.
S
In order to gain intemal buy-in prior to initiatin
the reforms, a number o f "Change Management
workshops and face-to-face discussions with
staff have been carried out.
Inadequate support to rationalize
workforce and implement performance
based reward mechanism.
M
The project introduces better and performance
based s t a f f incentives to rationalize workforce.
Additionally positions at the senior managemen
level have been created and private sector
professionals recruited in order to introduce be!
practices and preparing CBR to implement the
proposed reforms.
Limited capacity o f CBR to implement
technology and risk-based systems
including customs.
M
Strengthening Revenue Services component o f
the project ensures that CBR i s fully geared to
implement broad based reforms addressing
critical risk management issues.
- 36 -
Success in managing public perception
and inculcating tax compliant culture
especially confidence o f tax payers in the
impartiality o f the self assessment policy.
S
rhe tax education and facilitation function will
include a strong and well coordinated
Zommunications program to generate a
Zompliance-oriented and a user-fiiendly
interface between the CBR and taxpayers. The
proposed tax administration system will be
kansparent, fair, automated, simple and
2ost-effective. This i s expected to be achieved
through the establishment o f TFCs.
Variance in the actual versus perceived
independence o f arbitration and
adjudication process.
S
The quality assurance and monitoring program
will ensure that the reform process responds to
&payer expectations as well as measure
performance o f the project.
Limited capacity o f CBR in terms o f
project management and coordination
within different departments to implement
proposed
administration reforms.
M
Under the Management and Institutional
Development component, the project proposes a
new CBR training strategy to meet the
requirements of the new functional organization,
including the core area o f management, an
integrated training directorate for the tax and
customs administration, preparation and
supervision o f training needs analysis as a part
o f the annual performance evaluation process
and allocated budget resource to the training
function. Professional program managers will
need to be inducted into the Policy and Tax
Reform team overseeing the implementation.
Overall Risk Rating
S
I
-
Risk Ratina
Risk),
Risk), P Negligible or Low Risk)
- H (High
. - Risk),
. S (Substantial
.
. M (Modest
.
H
3. Possible Controversial Aspects:
None
G. Main Loan Conditions
1. EffectivenessCondition
Standard Conditions for IDA Credit and DFID Grant will apply.
2. Other [classify according to covenant types used in the Legal Agreements.]
0
0
0
CBR would prepare and furnish to the Association financial monitoring reports on a quarterly basis.
CBR will maintain a financial management system, including records and accounts, and prepare
financial statements in accordance with consistently applied accounting standards acceptable to the
Association.
CBR will have the Project records and accounts, including the Special Account and SOEs, audited
- 37 -
annually in accordance with appropriate auditing principles consistently applied by auditors acceptable
to the Bank, with terms o f reference for auditors and reports approved by the Bank.
H. Readiness for Implementation
0 1. a) The engineering design documents for the first year's activities are complete and ready for the start
o f project implementation.
[xi 1. b) Not applicable.
2. The procurement documents for the first year's activities are complete and ready for the start o f
project implementation.
[xi 3. The Project Implementation Plan has been appraised and found to be realistic and o f satisfactory
quality.
0 4. The following items are lacking and are discussed under loan conditions (Section G):
1. Compliance with Bank Policies
1. This project complies with all applicable Bank policies.
0 2. The following exceptions to Bank policies are recommended for approval. The project complies with
all other applicable Bank policies.
\L
WQJ!
i.
--J
Mudassir Khan
Team Leader
Simon C. Bell
Sector ManagerlDirector
- 38 -
John W. Wall
Country ManagedDirector
Annex 1: Project Design Summary
PAKISTAN: Pakistan Tax Administration Reforms Project
I
Key Performance
Indicators
Hierarchy of ObJectives
Data Collection Strategy
Critical Assumptions
Sector Indicators:
Sector1 country reports:
Sector-related CAS Goal:
0 CAS monitoring
Improving prospects for stable 0 Total tax revenues
collected by CBWGDP
activities
economic growth by reducing
0 Tax revenues collected by
0 Government economic
fiscal imbalances; and
sector/GDP
and sector reports
enhancing private sector
0 Perception o f enterprises
0 CBR and Ministry o f
development, institutional
Finance reports
regarding the nature and
strengthening and increasing
severity o f impediments
0 World Bank project
efficiency, accountability and
to private sector
supervision reports
transparency o f core fiscal
development, if any,
functions o f the public sector,
0 Periodic surveys o f
taxpayers and other
imposed by the tax
while encouraging greater
administration
documentation o f the
stakeholders
0 Average time taken by
economy.
new businesses to register
for tax purposes
from Goal to Bank Mission)
0 Political stability
0 Continued public
pressure for improved
public sector performance
3utcome I Impact
Project Development
’roject repotts:
ndicators:
Objective:
0 Average number o f days
Improving organizational
0 CBRreports
taken to identify and
0 World bank project
efficiency and effectiveness o f
notify taxpayers who fail
supervision reports
revenue administration.
to f i l e tax declarations or
0 IMFreports
pay taxes
0 Periodic surveys o f
0 Numberof
taxpayers and other
stakeholders
taxpayers/number o f tax
I
administration employees
0 Reduction in the overall
ratio ‘Employees at
officer levellemployees at
staff level’
I
0 Reduced number o f
complaints to the tax
administration
0 Average number o f days
taken to process a sales
tax refund
0 Percentage o f tax returns
filed electronically
from Objective to Goal)
Improving compliance
management through
strengthened audit and
enforcement capacity and
transparent and high-quality
tax service
Number of registered active
taxpayers
e Ratio “Amount o f taxes paid
on timenotal amount o f tax
assessed”
e Ratio ‘additional taxes
collected after tax
audit/number o f tax audits
conducted”
0
- 39 -
0
0
0
0
CBRreports
World Bank project
supervision reports
IMFreport
Periodic surveys o f
taxpayers and other
stakeholders
0
0
0
0
Continued government
commitment to reforming
public sector institutions
and facilitating private
sector development
Maintenance o f sound
macro-economic and
fiscal policies
Ability to adjust to
external shocks
Continued political
support for the
modernization o f the
revenue collection system
0
I
0
0
Improving trade facilitation
through modern and
internationally accepted
customs procedures
0
0
0
Improve integrity and fairness
o f tax administration
I
0
0
0
Output from each
Component:
Amount o f tax arrears
recovered in a fiscal
yearhotal amount o f arrears
at the beginning o f the fiscal
Year
Perception o f taxpayers
regarding the quality o f
service provided by the CBR
measured by periodic
surveys
Performance against agreed
standards for responding to
telephone, personal, and
written inquiries
Using the risk based
approach, reduce the
number o f import
declarations selected for
physical inspection at
designated sites to 20
percent
Reduce the average
customs clearance time at
the border to under lday
by the end o f 2006, and
by to under 4 hours by
end o f the project, at
designated sites
Perception o f traders and
other stakeholders
regardingthe quality o f
services responsivenessto
complaints and integrity
o f customs administration
as indicated by periodic
surveys
0
0
0
0
Monthly performance
measurement according
to W B methodology
CBRreports
World Bank project
supervision reports
Periodic surveys o f
traders and other
stakeholders
Public perception o f
revenue administration
integrity as measuredby
periodic surveys
Staff perception o f
integrity as measuredby
periodic surveys
Average number o f days
to complete
administrative appeals
process
h t p u t Indicators:
'roject reports:
-40-
[from Outputs to Objective)
1. Tax administration
restructured along functional
0
0
0
0
Tax-type functions at
CBR abolished and
number o f members
reduced.
Direct and income tax
administration at field
office level co-located in
12 RTOs with support
function merged.
Three special offices for
the administration o f
large taxpayers created.
Between 60 and 75
Taxpayer Facilitation
Centers established .
0
0
0
0
0
0
Annual Operational Plans
(AOPs)
Project Management
Reports (PMRs)
World Bank Supervision
reports
Mid-term review (MTR)
Consultant reports
Taxpayer and staff
surveys
0
0
0
0
0
I
0
I
2. Management and control
systems improved.
0
0
0
0
Regular corporate
planning process and
annual business planning
established.
New performance
monitoring system
designed and
implemented.
Internal audit and interna
affairs functions
established and
operational.
Workforce rationalizatioi
-41 -
Sustained commitment to
improvement in the
performance o f the CBR
at the political,
managerial, professional
and technical levels.
Effective change
management to build
ownership for the reforms
and minimize resistance
from managers, staff,
taxpayers and other
stakeholders.
CBR i s granted sufficient
autonomy to implement
reforms.
Willingness o f
Government to support
CBR in rationalizing i t s
workforce.
Legal changes required
for implementation o f
project activities accepted
by the Parliament and
enacted in a timely
manner.
Governments accepts to
measure CBR
performance not
exclusively based on
revenue production, but
takes into account broade
fiscal policy objectives,
such as achievements in
trade facilitation,
reduction in compliance
costs, and private sector
development.
ianagement system
stablished and training
apacity improved.
0
0
0
0
0
I. Revenue operations
mproved.
0
0
0
0
0
0
0
0
plan implemented,
sufficient number o f
professional positions
created to meet functiona
organizational
requirements.
New human resources
management, staffing an(
pay policy adopted,
including merit based pa>
and incentive systems.
New training CBR
strategy implemented to
meet the requirement o f
the new functional
organization, including ii
core areas o f
management.
Code o f Ethics
implemented.
Change management
structure developed and
implemented in tandem
with yearly project
implementation plans.
HumanResource
Information System
implemented and adoptec
for routine HR
management.
Administration o f incoml
tax changed from a circlc
structure to a streamline(
territorial functional
structure.
Business processes
re-engineered
Self-assessment for
income tax implemented
Risk-based audit selectio
system introduced
Risk-management group
at customs pilot site
established
Specialized customs post
clearance audit group
established
Self-assessmentsystem
for importers introduced
Importer, exporter,
customs agent, supplier,
and commodity profile
-42-
0
i. Revenue services
,trengthened
0
0
0
0
0
0
0
Tax compliance culture
mproved
I.
0
0
0
0
, Responsive IT systems
dopted
0
0
established
Refimd management
system implemented
Integrated taxpayer
database and single
taxpayer account
established and
functioning
Automated approach to
audit case selection based
on risk-assessment
introduced
Automated approach to
audit case assignment
among auditors
implemented
Specialized collection and
enforcement functions at
CBR headquarters
established
New appeals and
adjudication systems and
processes implemented
National intelligence
division with collocated
risk-management system
implemented
Specialized customs and
tax fraud division
established
Unified CBR website
designed and used for
taxpayer facilitation
Call center to facilitate
taxpayer contact
established
Taxpayer facilitation
center, points and mobile
facilitation spots
Tax forms reviewed and
simplified
Taxpayer charter
developed and
promulgated using
various intemal and
extemal media
I T platforms across entire
organization standardized
and integrated
Central lnformation
-43 -
0
I. Infrastructure upgraded
0
0
0
Project managed efficiently
mplementation progress
nonitored and evaluated on
ime
).
0
0
0
0
0
0
0
Depository System
(CTFDS) established
Users enabled and
empowered to acts as
agents o f change in I T
development
Data storage organized
for efficiency and
cost-effectiveness; use o f
electronic data storage
maximized and paper
records reduced to
minimal levels
Open- space office
configurations for CBR
adopted and implemented
Building and
accommodation standard?
revised
Inventory o f transport
fleet completed and
replacement plans
developed
Quality assurance and
change management
methodologies
implemented
High quality annual
operational plans preparec
on schedule
Semi-annual project
management reports
(PMRs) prepared in
advance o f supervision
missions
Procurement carried out
in accordance with World
Bank Guidelines
Project financial
management carried out
in accordance with World
Bank Guidelines
Annual project audit
completed in a timely
manner by independent
auditors
An implementation
completion report
reflecting CBR's
evaluation o f the project
prepared before project
- 44 -
closing
'roject Components I
iub-components:
Mgt. & Inst.
Ievelopment
.IOrganization & Policy
.2 Training & Development
.3 Internal Audit
.4 Internal Affairs
.5 Change management
.
Inputs: (budget for each
component)
$9.3m
$4.4m
$3.2m
$0.6m
$0.4m
$0.7m
roject reports:
[R assessment. Training
eeds analysis. Approved
,aining plan. Job
escriptions, Performance
fanagement Criteria and
ystem.
from Components to
htputs)
Govt has the political will
o under-take down-sizing.
VRS i s completed on the
)asis o f an appropriate
ight-sizing plan.
HR audit i s completed. Job
ikills needed and job
jescriptions match actual
ieeds in new organization.
. Reform program i s able to
:hange management culture
md work environment.
. Training needs assessment
s undertaken and training
dan approved and
implemented.
Performance management
is successfully introduced.
-
!. Revenue Operations
L.1 Direct Tax
L.2 Sales Tax
L.3 Customs
!. Revenue Services
4.1 Audit
4.2 Collection &
Znforcement
4.3 Appeals & Dispute
4.4 National Int.& Risk Mgt
$92.7m
$29.8m
$23.8m
$39.lm
mnual reviews, quarterly
eports, supervision reports,
urveys..
A suitable communications
strategy i s undertaken that i s
able to reach all major
stakeholders.
User-friendly website created
and able to attract sufficient
number o f users.
$6,6m
$1.7m
$l.Om
$1.6m
$1.5m
$0.8m
4.5 Customs & Tax Fraud
1. Creating a tax
:ompliance culture
4. 1 Taxpayer Ident.& Reg.
4.2 Taxpayer
Ed.&Facilitation
3.3 Impact Eval.& Qlty
4ssur.
$6.3m
5. Adopting Responsive
Systems
$3.6m
6. Infrastructure Up-grade
$24.0m
7. Project Management
$3.lm
Decisions are taken
regarding; IT platforms,
systems architecture, software
packages i.e. off the shelf or
in-house development.
$2.9m
$2.4m
$1.0m
-45-
-46-
Annex 2: Detailed Project Description
PAKISTAN: Pakistan Tax Administration Reforms Project
By Component:
-
Project Component 1 US$9.29 million
The proposed Project i s designed around a comprehensive reform strategy and includes the following seven
components: (i)
Management and Institutional Development; (ii)
Improving Revenue Operations; (iii)
Strengthening Revenue Services; (iv) Creating a Tax Compliant Culture; (v) Adopting Responsive I T
Systems; (vi) Infrastructure Up-gradation and Development; and, (vii) Project Management and
Implementation. Within these components training, consultant services for business process re-engineering
and information technology will also have DFID financial support during implementation. (See annex 6 for
catogory wise allocation).
(i)
Management and Institutional Development
The CBR’s human and institutional development strategy will support and enhance the broader tax reform
strategy by driving:
0
0
0
Strategic changes within CBR’s organizational structure;
Transformation o f the organization’s culture & ethos;
Development o f sound people-management policies and procedures.
(ia)
Organization and Policy
This sub-component addresses key institutional, organizational, and legal constraints o f tax and
customs administration. I t aims at reorganizing the CBR to facilitate an efficient planning,
execution and supervision o f core administrative functions. Greater managerial flexibility and
exemption from certain legal and regulatory acts which negatively affect the attempts o f CBR to
improve performance will require better and clearer planning and accountability mechanisms. The
sub-component w i l l strengthen corporate planning processes and support the development o f clear
tax reform steering as well as accountability mechanisms. I t will implement the first steps in the
process o f moving to a functional structure o f tax administration.
In particular, the sub-component will:
0
0
0
Streamline the top management structure in the CBR. CBR currently has 17 members
reporting directly to the Chairman CBR. This creates an unmanageable supervision and
coordination task for the Chairman. The top management structure will be changed and
restructured to reflect the four key areas o f top management responsibility: revenue
operations, revenue services, management services, and policy and reform.
Create the necessary organizational structure in the CBR to move to an essentially functional
structure o f tax administration. While some features o f the current tax-type organization will
continue to exist for some time, the functional responsibilities o f audit, collection and
enforcement, investigation, and taxpayer education and facilitation will be strengthened and
their managerial role increased.
Introduce a formal annual planning and performance monitoring process. CBR did not have
- 47 -
corporate plans in the past. The reform strategy and the PIP prepared by Maxwell Stamp in
cooperation with CBR management i s the first real corporate planning document. The
long-term reform planning will be supplemented by a formal annual planning process. Each
wing and function o f the CBR w i l l develop regular formal annual reports, which will include
performance measures and analysis for the past year and planned developments in the next 12
month plus a three-year outlook. Performance measurement o f CBR will be broadened and
will move away from a focus exclusively on revenue collection. A broader set o f performance
indicators will be developed, including regular feedback surveys from employees, taxpayers
and other stakeholders. A specific set o f performance indicators will also be introduced for
Customs activities.
Decentralize logistical support. T o facilitate the concentration o f CBR on the true
headquarter functions o f program development and supervisory tasks, regional support hubs
will be created to provide technical support to line administration.
Implement the first stage in the process to move to a functional structure o f tax administration
at the regional/local level. The sub-component will support the co-location o f income tax and
sales tax administration to prepare for the full merger o f tax administration functions. In
particular it will support the creation o f twelve regional tax offices (RTOs). Inthese offices
all operational and support functions except for tax audits, specialized enforcement tasks
(basic enforcement and collection will be merged), legal affairs and appeals will be merged
and moved to a full functional basis. Non-integrated functions will be co-located to facilitate
cooperation, in particular the organization o f comprehensive tax audits. For large taxpayers
the roll-out o f the LTU concept will continue with the creation o f two additional LTUs.
Strengthen tax policy capacity in the CBR. A parallel activity to strengthen the tax policy
capacity at the Ministry o f Finance will be launched under the public sector capacity building
project.
Develop a comprehensive integrity strategy for the CBR. CBR has in place a number o f
important elements o f an anti-comption strategy for tax administration, such as a
disciplinary and criminal penalty regime for cases o f corruption and an inquiry function to
investigate cases o f staff malpractice. A new Code o f Conduct has just been drafled and i s
now distributed to all employees. However, some important elements o f a credible integrity
initiative, including, e.g. a clear public commitment to increase integrity and a monitoring
process to assess progress made in increasing integrity in tax and customs administration are
still missing. The sub-component will support as part o f the overall CBR planning process
the development o f a comprehensive integrity strategy for tax and customs administration and
the implementation o f the key components o f this strategy. (This activity i s closely linked to
other project activities, in particular the sub-components on internal audit and internal affairs,
human resource development, and information technology).
(ib)
Human Resources Development
(1)
Human Resource Management. This will include developing an overall Human
Resource Management strategy based on modem principles o f organizational and human
capital development ad employment rationalization scheme to reflect the rollout o f the
restructured CBR, including MTUs, LTUs and RTOs. Specifically, the subcomponent
will:
Develop a workforce rationalization strategy and implementation plan to reflect
the rollout o f the new functional organization, including staffing o f LTUs, MTUs
and RTOs. This will include an employee contingency fund and redeployment
-48-
strategy covering all current staff and those not selected into the functional CBR.
0
0
0
0
0
0
0
0
Review and develop transparent and standard procedures for s t a f f recruitment,
selection, rotation, and promotion.
Rationalize the pay structure to permit merit-based pay increases, rewards,
bonuses and promotions;
Develop a strategy for moving staff selected into the functional CBR onto the new
pay structure and ensure that the old scheme i s phased out in line with the
employment rationalization scheme in an expeditious manner.
Develop career paths and update position descriptions accordingly based on the
new functional organization occupational categories taking into account the new
skills and competencies required against the currently existing s t a f f profile.
Develop as a priority a workforce planning strategy including successionplanning
to identify highly competent staff to provide the necessary leadership during the
reform.
Develop a performance evaluation system based on transparent criteria and
implement as associated incentive structure.
Prepare and implement a Code o f Ethics and Conduct specifically for the CBR
that incorporates features designed to safeguard the reputation o f the agency for
integrity and to identify and eliminate sources o f corruption through appropriate
review and enforcement mechanisms.
Establish and professionally staff the corporate communications office in order to
gain internal as well as public support for reforms.
Training. This subcomponent will focus on the capacity building o f the CBR staff
(2)
with specific aim to:
0
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0
0
0
Train managers in formulation o f training strategy, budget, personnel
management, monitoring, and evaluation.
Strengthen capacity to provide continuing professional training in line with the
requirements o f the new functional organizational model, including train the
trainer.
Develop curricula and training manuals for subjects relating to the reform for
different levels o f trainees, focused on both training and retraining, including use
o f classroom-based and electronic educational delivery systems. Include special
attention to grades 11- 16 as well as higher professional grades, but consideration
o f retraining needs o f s t a f f at lower levels who may be selected into the new
functional organization.
Strengthen regional training centers to meet local capacity-building and
competency needs in the new functional organization.
After initial training has occurred needed to roll-out new business processes and
functional offices, evaluate the impact o f training on individual, unit and CBR
performance. Use evaluation to provide benchmark for performance evaluation, as
well as to systematically improve and institutionalize courses o f study ad
approaches to teaching and learning.
Improve ProfessionalEthics. A Code o f Conduct and Ethics would be developed
(3)
under t h i s component Timely enforcement i s a critical element in implementing such codes
and in CBR, there are protracted delays in processing cases o f corruption caused by
- 49 -
understaffing, which will need to be remedied. Therefore, following steps are included
under this subcomponent:
Training o f managers to brief s t a f f on the contents o f the Code o f Conduct and
Ethics, their rights and responsibilities, and enforcement procedures.
Training o f s t a f f assigned to investigate inquiries into staff alleged breaches o f the
code.
Development o f clear guidelines for managers and supervisors on how to deal with
complaints alleging staff corruption.
Prepare professional ethics and conduct training modules suitable for ongoing
workshops and seminars in CBR on an ongoing basis, and as an integral part o f
continuing professional and career development.
0
0
0
(ic)
Internal Audit
This subcomponent will:
0
0
Establish a specialized internal audit functions in CBR.
I t will set up a central internal audit office for planning, program direction, procedures,
training and evaluation o f the internal audit program throughout the CBR for which staff
would rely on intelligence built into the system to identify possible errors and irregularities.
Field-based internal audit units will be established to implement internal audit plans in the
operational components o f customs, direct, and indirect tax.
(id)
Internal Affairs and Vigilance
In practice, there i s substantial uncoordinated involvement o f external agencies in examining
allegations o f corruption in the CBR. This partly reflects the fact there i s no existing top-level
organizational unit, which i s sufficiently independent from operational work, that i s specifically
charged with investigating corruption cases. This subcomponent w i l l address this issue by
assisting in creating a specialized internal affairs function at CBR headquarters. The internal
affairs function will report directly to the Chairman CBR and will be responsible for reviewing the
compliance o f CBR officers and staff with the CBR rules and regulations. In addition, a vigilance
unit will be established to investigate allegations against CBR officials and detecting corrupt
practices and corrupt officials. The vigilance unit will be headed by a senior manager who i s not a
regular CBR official and will report directly to the Secretary Revenue. It will take over cases from
the internal affairs unit when indications o f a criminal offence become apparent. I t will also start
investigations based on information received from outside stakeholders, in particular other
government agencies charged with counteracting corruption in government agencies and taxpayers.
(ie)
Change Management
This sub-component will support activities aimed at developing and implementing appropriate
strategies for managing organizational change at all levels o f the tax administration, including
communication strategies to explain the rationale and potential impact o f the planned changes to all
managers, officers, staff, taxpayers and other stakeholders. This will include measures to
encourage participation o f managers and staff in the change process, the piloting o f important
changes to learn from experience, the creation o f feedback mechanisms, and the training o f staff
responsible for change management activities.
-
Project Component 2 US$93.17 million
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(ii)
Improving Revenue Operations
This component would support extensive and very significant strategies and initiatives to transform the
administrations o f the CBR’s three revenue streams: Direct Tax, Sales Tax and Central Excise; and
Customs - (1) from pure enforcement, to a risk-based self-assessment systems based on voluntary
compliance o f taxpayers; and, (2) from a mix o f organization structures o f the three streams to consistent
ones that are functionally-based, automated, decentralized and modem.
To accomplish the transformation, strategies and initiatives will focus on extensive re-engineering o f the
core business processes and operating procedures o f each o f the CBR’s three administrations over the next
five years and beyond. The three revenue administrations represent this component’s three main
sub-components; Le., (1) Direct Tax; (2) Sales Tax and Central Excise; and, (3) Customs. The degree o f
re-engineering required varies among the administrations o f the three revenue streams (Sales Tax, the
lowest), and comments in the respective sections below, by sub-component, describe some highlights
unique to each.
However, the main reform objective o f the project in the long term i s extensive integration o f the revenue
streams. Therefore, highlights o f what the collective re-engineering efforts are designed to accomplish
the long term in the integrated operations o f the CBR are as follows:
Redesign organization structures and business processes in ways which will lead to co-location as
soon as possible - and eventually, to integration - o f the Direct and Sales Tax administrations to
improve the CBR’s efficiency and effectiveness and also to lessen the burden on taxpayers;
In the long term, merge as many support services as possible for all Revenue administrations,
including Customs, even though Customs operations will always be maintained as a separate wing
because i t s operations are very different from those o f direct and sales taxes;
In the long term, in Customs operations, modernize export and import clearance and related
procedures which impact upon trade facilitation, in accordance with intemationally accepted
principles and methods;
Assign one unique identification number across all taxes for each taxpayer and convert andor
cross-reference all databases to the one-number system;
Create an integrated tax information system, including a taxpayer account for each taxpayer and a
taxpayer accounting system, governed by the unique taxpayer-identification-number system, to
enable matching of 3rd-party information against each taxpayer’s self-assessment declarations and
support the various enforcement functions o f Audit, Criminal Investigation; Collection &
Enforcement; etc.
Provide a single site where taxpayers can easily and quickly register for all taxes, with simple
registration instructions, forms, procedures and CBR staff assistance;
Organize and base all revenue operations processes and procedures, including those o f Customs,
on a self-assessment scheme;
Replace the current, transaction-based activities o f respective operations’ staffs with modem
programs for compliance/enforcement based on post-return and post-clearance, risk-management
systems;
Design and implement modem risk-management systems - with mathematical ratios, taxpayer
profiles; industry standards, etc. - to support compliance-enforcement programs - for audit; for
collection and enforcement; for criminal investigations - which are further supported by
information technology equipment, MIS, and an integrated tax information system, with the ability
to match 3rd-party data, among other features;
-51 -
Differentiate treatment among taxpayers-tradersklearing agents by revenue potential and risk; i.e.,
by their potential risk to the Government’s tax revenue and by the degree o f their historical
compliance or non-compliance with the voluntary compliance system;
Establish and expand Large Taxpayer Programs for special handling o f the small percentage o f
taxpayershaders (4-5%) who every year pay a major part (up to 90y0)o f the Government’s
annual tax and customs revenues;
Design procedures and processes which will help minimize interfaces between taxpayers and tax
and customs officials and create mechanisms to combat corruption and insure transparency and
accountability;
Decentralize Direct Tax operations from the Central Office to 12 proposed Regional Offices in
Pakistan’s main population centers;
Test decentralized, fimctional operations at controlled pilot schemes, e.g. Medium Taxpayer Units,
and phase-in the implementation o f testedproven operations and organization structures
throughout the country;
Design vigorous enforcement programs to target taxpayers who choose not to comply voluntarily;
and,
Design and introduce amendmentdadditions to the Tax and Customs laws which will support and
enable the envisioned reforms and transformation.
Below are strategies and initiatives more specific to each o f the administrations which will be supported by
the respective sub components.
(iia)
Direct Tax
Direct tax administration i s generally regarded to be the area o f CBR performance with the greatest
need o f reform. The structure i s a deep and highly bureaucratic one that expands to hundreds o f
base level offices, each o f which has a high degree o f independence. The operating techniques are
outdated and ineffective and use o f technology i s quite limited.
The administration o f direct tax remains problematic for a large number o f reasons. The direct tax
organization structure consists o f five distinct levels and i s both costly and ineffective. Tax
officials have too much to do and, therefore, cannot accomplish their assigned tasks with
completeness and quality. Taxpayers are constantly inconvenienced with the necessity to meet with
tax officials and “negotiate” various documents, assessments and payments. Taxpayers have a
direct linkage by the system to one tax official who can abuse the relationship with little risk o f
reprisal. Compensation i s so low as to fail to provide a reasonable standard of living for tax
officials and their families. Office space, equipment and services are inadequate and there i s little
use o f technology. Training o f tax officials i s inadequate. Taxpayers file a large number o f
complaints and appeals, the outcome o f which i s very frequently a partial or total reversal o f the
prior decision made.
The cumulative result o f the above conditions i s that the final direct tax determinations are
frequently weak, negotiated, and in many cases arbitrary determinations, which do not in any
substantive way reflect the true tax liability o f a taxpayer under the law. This substantially
reduces the amount o f tax that i s ultimately assessed and collected. In addition, the total base o f
taxpayers registered and paying taxes falls far short o f the number that are obligated to f i l e and
pay income taxes under the tax law.
Many o f the reform measures planned and described above apply specifically to the organization
structures and the re-engineering o f the core business processes o f Direct Tax, particularly in the
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short and mid terms. In fact, the required transformation o f the operations o f Direct Tax has
already begun and will continue through the initiatives proposed for this sub component.
The future organization structure for administration o f direct tax will also be based upon a
functional approach. Several functional members will provide functional program planning,
policies, direction, training and evaluation from the central office o f the CBR. Tax administration
activities will eventually be collocated into twelve regional tax offices (RTOs), with extended
operations for taxpayer facilitation purposes into 60-75 taxpayer facilitation centers (TFCs).
There will also be three large taxpayer offices (LTUs). There i s already a good start with the
creation o f Karachi LTU that i s serving around 600 gazetted taxpayers. Around 50 officials from
both the Income Tax and Sales Tax Departments have been brought together, organized and
collocated on a functional basis. In addition, a Medium Taxpayer Unit (MTU) has been setup in
Lahore. Based on i t s experience, CBR plans to established another 5 in the next year. These
MTUs w i l l become part o f the 12 regional tax offices that will co-locate Sales tax and Income tax,
providing for greater sharing o f information, resources and removing duplication o f certain
common functions. However, CBR should pause, review and correct the problems described
above before entering bad data in the databases o f the new MTUs. The time and effort in these
endeavors i s time well spent because correcting unreliable data later will cost considerably more,
as learned not only from the Lahore experiences, but from international best practices. Also,
before implementation o f Rawalpindi and the other new MTUs, CBR should carefully review,
decide and document what features o f the Lahore “pilot” should be applied to the other MTUs software, staffing, procedures, etc. (and other parts o f the overall organization) and what features
should not be applied - and the reasons why.
Modem tax administrations design and implement a “Records Controls and Disposition Policy”
which authorizes phased retirement and eventual destruction o f records, aRer the statutes o f
limitations for audit, collection and criminal investigation have expired. There i s no need to store
and maintain records forever. In a few appeals and legal cases, original documents are required.
For other types o f cases, photocopies or electronic versions o f documents are all that are usually
needed. The following recommendations are expected to yield significant savings in terms o f
space, facilities and time o f technical personnel currently being dedicated to clerical work which
can be applied instead to revenue operations and revenue services:
1. Remove all but the most necessary tax-retum files from the Lahore MTU and store removed
files at the regional DPC or at a “warehouse” with the staff and safeguards as described above.
2. D o not store tax retums and documents at the Rawalpindi MTU nor at the other MTUs to be
established this year and later. Instead, apply Recommendation 1.
3. Review statute-of-limitation parameters under the law, and request authorization from the
CCFR to proceed to phase-in destruction o f all existing records beyond administrative action
because o f the expiration o f statutes o f limitation - at least, all records before 1990 particularly documents pertaining to accounts receivable which are 10 years old and older.
4. Design, write and implement a “Records Controls and Disposition Policy” which will permit
modem administration o f tax returns and documents under USAS.
5. Apply the above recommendations to other revenue operations facilities, e.g. LTUs.
Among the most important project strategies and initiatives for Direct Tax are:
0
Establish more specialization u n i t s for handlipg o f direct operations for the country’s largest
taxpayers.
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0
One Large Taxpayers Unit (LTU) was already established and got underway in Karachi in
October 2002. There has already been some degree o f integration o f income and sales/excise
tax operations for Audit, Enforcement, Taxpayer Facilitation and Legal at the Karachi LTU.
I t s facilities are excellent. I t s staff i s well organized on a functional basis. Jurisdiction has
been expanded from the initial 300 large taxpayers to more than 500 based on revised criteria
and i s expected to reach 600. The HR and Information Processing functions lend good support
to the operations functions.
The operations o f the LTU will serve as “a model office“ for replication to CBR’s operations
elsewhere;
Two more L T U s will be established in the mid term;
LTUs will be the focal point in the future for all operations applicable to the country’s largest
taxpayers.
Decentralize operations for other taxpayers based on functional structures
A Medium Taxpayers Unit (MTU) in Lahore recently began operations. I t s facilities are
excellent and i t s small s t a f f (not yet fully staffed) i s highly motivated. The MTU currently has
10,000 taxpayers under i t s jurisdiction - medium and small businesses and wage earners - but
it i s expected to gradually expand to 50,000. Policies and procedures under a functional
structure - Audit, Collection & Enforcement, and Taxpayer Facilitation are being tested.
The operations o f the MTU will serve as an interim “model office” for the re-engineered
operations o f Direct Tax and will be replicated to other sites across the country in the short
term;
Based on the results o f the Lahore “model office test”, five more MTUs are already scheduled
to be established;
In the medium to long term, the MTUs will become part o f the 12 Regional Tax Offices
(RTOs), where Income and Sales Tax operations will first be co-located, and in the long term,
integrated.
Several data processing operations for Income Tax under a universal self-assessment system
will be established to process income tax returns, tax payments, and other documents. Among
the numerous operations’ requirements for data processing centers are rapid processing o f all
documents; electronic documentation o f accurate information for the integrated tax information
system’s databases; and “capture” o f key data for taxpayer control and enforcement risk-management information; identification o f non-filers and stop filers; verification and
matching o f 3rd-party information for audit, collection & enforcement; etc.
-
Sales Tax & Central Excise Tax
(iib)
The CBR’s Sales Tax operations have been organized on a functional basis for some time and are
largely based on self-assessment principles. Operations are supported by many modern tools and
techniques to facilitate compliance/enforcement activities at some locations. For example, the
Model Sales Tax House’s organization and operations recently established in Karachi have
excellent facilities and modem I T systems designed to meet users’ needs. Operations there under a
functional basis - already integrated with Central Excise - are well organized and coordinated.
Nevertheless, there i s s t i l l much room for improvement in the operations o f the Sales Tax wing.
Therefore, this sub-component proposes strategies and initiatives to continue to test and refine the
on-going core business processes for widespread application throughout the country and for testing
co-location and eventual integration with Direct Tax. In the short and medium term, the project
would focus particular emphasis on:
0
Design o f systems and compliance programs to increase the number o f taxpayers in the tax net;
0
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0
0
0
0
0
0
e.g., establish special units at Collectorates to examine internal and public records to detect
taxpayers not in compliance. Currently, there are only 150,000 registered taxpayers from a
liability-base estimated between 800,000 to 1.5 million;
Refining automated systems to track and expedite refunds for exporters;
The Sales Tax Automated Refunds Repository (STARR) pilot introduced in October 2002 has
made good progress in reducing the workload backlog and will continue to be refined;
Preliminary risk analyses o f large-refund claimants under “Green, Yellow and Red”
classifications have had good success and will need to continue to be refined and applied to all
taxpayers;
Refining and improving the current automated risk-management systems to classify and treat
all taxpayers in accordance with their objective risk assessments (not just large traders);
Streamlining compliance requirements and lessening the burden for low-risk taxpayers,
particularly for large taxpayers;
Bolstering taxpayer facilitation services considerably, e.g. initiatives to provide current
tax-return forms through newspapers and through the CBR’s website;
At LTUs, monitoring and refining the integrated operations o f Sales, Excise and Direct Taxes
for eventual replication and implementation across the country;
Designing automated systems and procedures to monitor the timely receipt o f documents and
payments from banks and to expeditiously follow-up on reconciliation discrepancies;
Testing and improving dispute resolution processes for taxpayers (e.g. the Dispute Resolution
Complex soon to be established in Karachi - see below;
Introducing necessary legislation to support operations, e.g. requiring record-keeping by
taxpayers o f purchaseshales; permitting tax authorities to make presumptive assessments,
under pre-defined criteria, etc.
Central Excise Collectorates are merged with Sales Tax Collectorates and their operations will
continue to be brought under the centralized system o f sales tax. The Central Excise regime will
continue to be withdrawn or minimized, and i t s share o f federal tax revenues will continue to decline
dramatically (21% in 1997-98 to 8% in 2003-04).
(iic)
Customs
Generally, the Customs Administration currently falls far short o f meeting best international
standards and practices recommended by the WTO and the WCO. For example, current operations
are burdened by outdated, complex legislation, processes and procedures; by general staff
inefficiency; and by serious revenue losses because o f weak andor fraudulent execution o f key
functions, such as undervaluation o f goods and audits.
Most aspects o f the Customs Administration need fundamental changes, including i t s organization
structure; i t s minimal service orientation; the whole spectrum o f i t s Human Resources and
management programs; its very limited I T systems; and the urgent need to upgrade i t s facilities for
staff and taxpayers. Some work has already been accomplished to modernize export and import
clearance and related procedures which impact upon trade facilitation, in accordance with
internationally accepted principles and methods, but a great deal o f reform work remains to be done.
This sub component would support strategies and initiatives to continue to convert operations from
an assessment to a self-assessment system supported by automated, selective verification systems
and programs. To meet overall international standards and practices, initiatives target re-engineering
o f all major business processes, including import and export procedures; valuation o f imports and
- 55 -
.
exports; transshipment controls; controls o f warehousing and licensees; procedural reforms to
expeditiously process refunds; and focusing on targets for enforcement based on modem selection
methods, e.g.
0
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Selective verification programs at time o f entry processing will be supported by post-release
verifications and audits.
Intelligence and investigation programs will be designed to support the verification programs
as well.
Verification actions will also be applied differently among different categories o f
tradersklearing agents and goods.
Goods and credit claims o f large traders who have proven themselves historically and
consistently to be dependable, low-risk (gold card members), for example, will be handled the
most expeditiously;
Re-engineering o f Customs’ business processes, particularly, will focus on minimizing
interactions between tradersklearing agents and Customs officials.
As with Direct and Sales Tax, the “pilot approach” will be applied to re-engineering o f Customs’
business processes. For example, this sub-component would support the collective strategies and
initiatives o f a pilot project launched in March 2004 in Karachi for C u s t o F which has been
approved to test a new approach to the operating procedures for process flow in the clearance o f
imports and exports. As described by a FAD mission o f the IMF in March 2003 - “The pilot will
be designed to test the most important concepts o f the entire Customs reform program - electronic
transmission o f entries; selectivity, including automatic selection o f entries that are ‘‘free to leave”
(green channel); those requiring documentary checks (yellow channel); and shipments requiring
physical inspection (red channel); computer assignment o f appraising and examining officers; and
post-release verification and audit.”
The replication across the country during the next few years o f the results o f the “model pilot”
would be supported by this sub component.
-
Project Component 3 US$ 6.62 million
(iii)
Strengthening Revenue Services
As explained in the introduction, the Central-Office level will design national programs, policies,
procedures and annual work plans for all Revenue Operations, in accordance with international best
practices and standards for functional organizations. The annual work plans developed by the Central
Office will all be executed at proposed 12 Regional Offices for Direct Tax; at Sales Tax Collectorates; and
at Customs field formations, in accordance with the policies, procedures and standards established by the
Central Office.
Functional Revenue Services will be provided to field Revenue Operations by corresponding functional
units at the Central Office and at Regional Hubs for Direct Tax in order for field offices to execute work
plans efficiently and effectively. Therefore, this component has five functional sub-components:
(iiia)
Audit
The main thrust o f t h i s sub component will be on strategies and initiatives to establish a Tax Audit
h c t i o n as a separate functional stream, under which w i l l be developed and implemented at a
national level, among many modemization initiatives:
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Policies, procedures and operating manuals
Automated audit-case selection systems based on risk management concepts for all three
revenue streams;
Automated audit-case assignment systems for auditors;
Quality standards and formal and independent structure for conducting on-going review o f
quality;
Organization structures to improve efficiency and effectiveness e.g. establish specialized u n i t s
for large taxpayer audits, for simple office audits, etc.
Annual Audit Plans for Direct and Sales Taxes which cover available resources and projected
case audits at the various jurisdictions;
Programs and procedures for detection o f potential fraudevasion for referral to the Customs
& Tax Fraud function;
Organization performance objectives measurement criteria;
Specifically for audits by Customs staff at i t s Customs Houses
Post Clearance Audit methods and procedures
Post Clearance Audit Selection system
Post Clearance Annual Audit Program
Risk ratings for warehouse Audits
Spot-check program for low-risk warehouse audits
MIS requirements for all Revenue Operations;
Selection and training o f Auditors for each Revenue Operation.
(iiib) Voluntary and Enforced Collection
The Collection and Enforcement function at the Central Offices will provide functional services to
support regional Collection and Enforcement operations, where functional units will be assigned
responsibilities to:
Monitor compliance with filing and payment requirements o f taxpayers;
Demand and secure outstanding tax returns;
Recover taxes in arrears;
Impose interest and penalties for noncompliance;
Conduct intemavextemal surveys to detect unregistered taxpayers;
Collect and analyze internal and 3rd-party data about taxpayer assets to support enforced
collection efforts;
Enforce collection;
Detect criminal violations and report them to the Customs & Tax Fraud units.
The Collection & Enforcement unit at the national level will also be developing policies,
procedures and manuals; annual operational plans; organization performance criteria and
measurements; M I S requirements; and criteria for help in the selection and training o f staff.
Legislation will be introduced to enable assumption o f some o f the responsibilities described above
by operations u n i t s o f Collection & Enforcement.
(iiic)
Appeals and Dispute Resolution
This function i s generally characterized by a mutual distrust between taxpayers and the CBR.
Delaying tactics on the part o f some taxpayers, as well as poor quality or incomplete audit reports
have resulted in delays in the judicial system (cases can take up to 2 years or more) and a large
- 57 -
number o f pending cases. Without improved audit details, the expeditious disposal o f
adjudicationlappeal cases i s severely hindered.
Furthermore, there i s a lack o f knowledge among CBR staff regarding newly decided cases and
precedence cases. This results in a number o f tax decisions not upheld by the appeal bodies. As
such, the large number o f annulled or modified tax decisions lessens the efficiency and the
credibility o f the CBR.
The proposed project will support the reform efforts to improve this function. Inorder to build a
relationship o f mutual trust, the CBR i s continuing to develop appeals and adjudication systems
and processes that are fair, expeditious and transparent. There will be a single avenue o f appeal
for all kinds o f taxes. This will be comprised o f an initial administrative (quasi-judicial) level,
which, in turn will be followed by a judicial phase.
CBR Member Legal will be responsible for developing this national appeals program and its
associated procedures, and staff at the local level will be responsible for implementing them. The
national appeals and adjudication program will be uniformly administered across the different tax
disciplines, and will preserve and enhance the taxpayers' rights to appeal, ensuring the appeal
system i s transparent and more "user-friendly".
(iiid)
National Intelligence and Risk Management
I t i s important to identify that CBR under the project will create a corporate National Intelligence
Division (NID) with a co-located Risk Management Unit (RMU). I t s capability will span all
operational areas o f Direct and Indirect taxes and those areas o f Customs activities that affect
revenue collection [Customs risk management objectives are much wider than other revenue
administrations, as they address: (i)
supply chain security issues; (ii)
non-revenue related
criminality; (iii)
control over movements o f goods; (iv) cross-border cooperation; and, (v) relations
with other agencies including the police and other security forces, standards and quality control,
health and phyto-sanitary administrations, and transport authorities. A large part o f this
information i s irrelevant for revenue purposes, and involves classified intelligence. For these
reasons, it i s essential that the Customs risk management policy be multi-tiered], and will form a
new functional area under Member Revenue Services.
RMU will analyze and report on the overall taxpayer environment (strategic analysis), and
individualtaxpayer performance and level o f r i s k (planning analysis). I t s' primary responsibility
will be to ensure that statistically and analytically sound information i s available to audit and
enforcement. The NID will be responsible primarily for identifying and preparing cases for
investigation where serious evasion o f tax or prohibition i s suspected. Both units will require
specialized training as well as systems capability for s t a f f to perform these functions effectively.
(iiie)
Customs and Tax Fraud
Investigation i s an inherent component o f all the tax systems administered by the CBR but i s
fragmented between Customs and the Tax divisions. In some cases investigation staff are also the
intelligence officers and are required to investigate both internal and external situations with
consequent conflicts o f interest and conflicting priorities. The first step i s setting up the Customs
and Tax Fraud Division (CTFD). It follows that any staff recruited must have similar personal
qualities and receive even more extensive technical training. The staff will work in teams with
team members specializing in the different taxation disciplines. CTFD will be required to build
liaisons with other national and intemational organizations as part o f its operating strategy. The
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building o f trust and the breaking down o f barriers i s a slow and painful process but one that must
be completed for CTFD to reach i t s full potential and effectiveness.
Major tax evasion and smuggling are intemational crimes that require intemational solutions.
CTFD will be responsible to bring perpetrators o f such offences into custody and for prosecution
under the relevant legislation. In this regard, CTFD must also win professional respect, trust and
confidence o f its counterparts. Therefore, the people selected for intemational liaison must be
competent and should be empowered to decide and act (albeit within a well defined area o f
responsibility) to further building an image o f a professional and dedicated investigation force
beyond corruption. A whole program o f specialist training (e.g., covert surveillance, interviewing,
search o f premises, high speed driving, defensive driving, arrest and constraint, and radio
discipline, etc.) will be carried out. However, the Customs component o f this program should
distinguish between enforcement for revenue violation purposes and the detection and prosecution
o f criminal activities that are not linked to other tax systems.
-
Project Component 4 US$6.27 million
(iv)
Creating a Tax Compliant Culture
(iva)
Taxpayer Education and Facilitation
The primary purpose o f t h i s sub-component i s to transform the way CBR functions by
streamlining and improving efficiencies in tax administration. This sub-component will support the
following activities.
Desiminddevelouing Taxpayer Facilitation Center (TFC) software. Currently, two major avenues
by which taxpayer facilitation will take place are planned
CBR Web page: The CBR web page will be used as a key facilitation point and would
need to be designed in a way to satisfy the needs o f the taxpayers. Currently there are
several web pages will be merged or closely coordinated. The web page will potentially be
used for training taxpayers, electronic filing, distribution o f forms, forum for discussions
and filing complaints, registration/ de-registration o f taxpayers, distributing explanatory
booklets, and processing incoming taxpayer queries and responses.
0
Cull Center: Considering evolving demands, a call center will be established to facilitate
taxpayer contact through e-mail, letters, faxes and telephone calls. The establishment o f a
call center will offer numerous advantages to CBR such as flexibility in locating
employees away from the employment centers and expensive locations, not needing
employees who are tax experts, and better utilization o f staff. T o better conduct the
functions o f the call center, records o f taxpayer questions and answers would be
maintained in a database which can be referenced by the call center staff in responding to
taxpayer queries. Use o f questions and answers database would result in uniformity o f
answers and enhanced quality o f response. Some o f more frequently asked questions and
related answers can be put on the CBR web site for public use. The numerous advantages
o f this include:
- CBR TE & F employees may be located in the Call Centre, which in tum, does
not need to be located in or near existing offices or in expensive locations (indeed,
centres are often located in areas with an employment need);
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-
Telecommunication w i l l go through wires or will be transmitted;
The call center will be supported by a database with all the asked and answered
questions. This safeguards the high quality o f
answers;
- Database questions and answers w i l l be monitored by expert tax staff ensuring
quality control o f answers;
- Call Center staff w i l l directly answer 80-90 % o f the questions and remits the
remainder will be relayed to back-up-experts;
- Employees need not be tax experts; rather, they will have other qualities, such as
search-engines), a service
computer literacy (ability to handle database
oriented approach and other people-centered skills;
- The call center will be flexible, connecting more s t a f f during peak demand periods
using modem telephone techniques. The
.telephone system will be a huge net
connecting people and computers;
- The cost for establishing the center will be reasonable, resulting in a cost per
question that i s very low;
- Expert knowledge can be readily accessed; and
- The staff will be allocated according to fluctuating demands o f direct contacts - as
phone calls - and indirect contacts.
-
-
In addition to above software, for helping taxpayer facilitation, software for allowing for
registratiodde-registration o f taxpayers would need to be developed. This software will be
driven by a centralized database o f taxpayer identification numbers so as to ensure that the
same taxpayer number i s not assigned to more than one taxpayer by the regional offices.
Eventually, taxpayers would be able to registedde-register through the CBR web site.
Communications Propram: The quality o f service that taxpayers can currently access varies across
Pakistan. The reform strategy will address this inequality and raise service standards across all
areas. A key component o f t h i s effort will be the application o f modem basic communication
principles, ensuring that taxpayers have access to a flow o f information that is:
0
0
0
0
Relevant - what the taxpayer needs;
Timely - when the taxpayer needs it;
O f high quality - correct and undisputable; and,
Simple - enabling the taxpayer quick and efficient access.
Explanatory literature will also be developed and updated regularly. The literature (publications,
brochures and booklets) will cover dissemination o f laws, rules, procedures and changes from time
to time particularly with reference to the universal self-assessment and record keeping
requirements.
The publication o f a monthly or quarterly newsletter as part o f the communication strategy, in
collaboration with other components, will be evaluated and implemented in the medium-term
reform period.
Internet Facilities: The information super highway, or the Internet, i s an important driving force
behind the new work methodology, enabling improved communications both between CBR and the
taxpayers as well as within CBR. By making I T an integral part o f the organization, CBR will
revolutionize the way it functions and manages i t s relationships with taxpayers by reducing the
interaction with taxpayers. Internet will be used for:
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0
0
0
0
0
0
0
0
0
Intemal and extemal information;
Training taxpayers and staff;
Intemal and extemal communication;
Electronic filing;
Distribution o f forms;
Providing a forum for discussion and complaints;
Registration and de-registration;
Publishing explanatory booklets for reading and printouts; and,
Processing o f incoming tax forms as well as i t s outgoing correspondence. CBR will
initiate consultative interaction with stakeholders and oversee development o f computer
software for electronic submissions o f returns and statements.
Taxpayer
Identification and Registration
(ivb)
- As the CBR moves to one-step registration for all taxes, one number will be used as the unique
taxpayer identification number. The importance to modem tax administrations o f highly accurate,
reliable, computerized information databases, which start with the taxuayer identification and
registration functions, cannot be overemphasized. Therefore, this subcomponent would support all
steps in the CBR’s transition to the revised taxpayer identification and registration, including:
0
0
0
0
0
0
0
0
0
0
0
0
Necessary legislation for assignment o f unique NTN;
Design or re-design o f the NTN:
Insure that the NTN has enough digits for future use
Include a check digit appended to the number (for error detection) etc.
Conversion o f existing databases (file reference numbers; other NTNs; etc.) to new NTN;
and
Design o f administrative procedures:
Design o f new registration form;
Instructions for taxpayer registration;
Where registration i s to be done (including website);
Requirements for printed registration certificate;
Redesign o f tax forms and other documents to provide for the mandatory inclusion o f the
NTN;
Content and format o f notification letters to notify taxpayers o f their new NTN and the
requirements for i t s use.
Quality Assurance and Monitoring
(ivc)
A quality-asswance monitoring program i s necessary both for the taxpayer and the C B R to ensure
that CBR’s taxpayer education and facilitation function responds to taxpayer expectations and
motivates the use o f increased resources. Following information technology initiatives under the
proposed project will provide much o f the CBR’s QA functions o f performance measurement and
monitoring; the system will generate standard reports as well as support ad hoc queries in support
o f these functions.
This subcomponent will include: (i)
a Sales Tax Information System; (ii)
a Direct Tax Information
System; and a Customs Information System. Details o f these systems are dicussed under
component 5. In addition, a computerized management information system for managers to monitor
the operations o f the CBR would also be developed. By combining data from the master tax f i l e
with detailed information on audit and collection processes, it would be possible to develop an
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information system that will provide required details on tax administration operations. Depending
on the level o f details o f the data collected, such information will be available at the aggregate level
o f the tax administration or at the more disaggregate levels o f the tax offices and tax officials. The
information will also be available for any period o f time covered by the underlying data, allowing
one to compare operations over time. The management information system will be used as the basis
for budgeting and resource allocation, for rewarding outstanding performance, for identifying
problem areas, and for highlighting evasion.
I t i s important to note that tax administration information can also be extremely useful in informing
tax and budget policymakers about the existing tax system and in assessing the likely consequences
o f changes to that system. For example, summary statistics based on information from tax returns
can be useful in identifjwg trends in the taxpaying population. Economic models can be developed
to forecast tax (and non-tax) receipts, or to estimate the revenue and distributional effects o f
proposed tax law changes.
-
Project Component 5 US$3.65 million
(V)
Adopting Responsive I T Systems
This component will help CBR transform the way it functions by re-engineering the business processes,
thereby furthering the reform objectives. The I M S department under Member I M S would primarily drive
this component. The costs indicated above are for I T costs related to developing a centralized integrated
database and developing uniform systems development standards and architectural plans. In addition to
these costs, substantial amount o f costs shown in components 1,2,3 and 4 are related to hardware and
software development related to re-engineering and automating those components. This component will
support the following sub-components:
(Va)
ICTCBR
cost
Included in Component 1
Responsibility
Office o f Member I M S
The primary purpose o f this sub-component i s to transform the way CBR functions by employing
I T to move from a highly manual to an automated environment in which computers are used to
facilitate decision-making. The objectives o f this subcomponent are:
0
0
0
0
0
0
0
Improving management control to levels approximating those experienced in industrialized
countries;
Increasing the transparency o f tax administration;
Reducing interaction with taxpayers in day-to-day operations;
Managing information for broadening the tax-net, increasing revenue and facilitating trade;
Identifyingand adopting international best practices;
Allowing for multi-directional electronic communication under the electronic signature
ordinance, 2002; and,
Streamlining and improving efficiencies in tax administration.
Despite substantial past investments in information technology by the CBR, desired results have
not been achieved because standard I T development methodology has not been followed, and I T
project management has been inadequate with almost no preparation for a user interface, little
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management ownership and isolated systems development. Moreover, the development o f I T
systems in the past has proceeded in an ad hoc and unplanned manner so that most departments
operate stand-alone modules that are not integrated into the main system. There i s also a general
recognition that CBR’s I T projects have been high cost, have produced less than expected except in
isolated cases, and failed to boost performance significantly. Acknowledging previous mistakes,
CBR wants to reform i t s Information Systems to deliver complete, accurate, and up-to-date
information in a useful manner and at a reasonable cost. This may require that entire processes and
work culture be re-engineered.
This sub-component will support the following activities:
e
Overall IT strategy development including determining appropriate hardwarehoftware
infrastructure for the CBR: The very first activity supporting this would be development o f
an information systems plan (ISP). For reforms to be successfbl, I T needs to be an essential
component o f the reform program and development o f an ISP i s the first step towards having
a unified vision o f I T at CBR. The ISP should describe the current architecture (in terms o f
location, hardware, software and network resources) and a target architecture (also, in terms
o f location, hardware, software and network resources). Once a clear definition o f current and
target architecture has been achieved, ISP should lay out a transition strategy for going from
current to target architecture. The transition strategy should detail the phased deployment o f
hardware from current locations to new, the upgrade or replacement o f software towards a
unified platform, and the rollout o f training for CBR employees. The ISP should also
establish standards for the System Development Life Cycle. Additionally, the ISP should
address data management and conversion.
Consistent with the new strategy, the I M S department will maintain standards for hardware,
software and network platforms that will remain binding across all jurisdictions unless
exceptions are specifically sought and granted. I t i s entirely possible that all u n i t s will not be
on the same timeline for upgrades and hence there will be some variation, but such variations
should not span entirely different.generations o f technology if there i s planning and oversight
at the center.
e
Set up appropriate contractual relationship with PRAL: I t will involve decisions on whether
PRAL will be one o f the bidders for development tasks envisaged in this project or just
provide operational and management support. Furthermore, this activity will address
restructuring o f the PRAL organization to reflect the needs and organization structure o f i t s
principal client - the CBR. The I M S group will be strengthened with the inclusion o f revenue
officers and other domain experts.
e
Set up systems operations and management control at the CBR: This activity will clearly
delineate whether CBR’s I M S department or P R A L will be responsible for systems
operations. The sub-component also envisages the setting up o f an I T help desk facility at
regional centers and headquarters. The help desk will provide first and second line desktop
and networks support. Furthermore, support staff will carry out routine housekeeping
operations for all systems and network components. Maintenance and support contracts
would be put in place to ensure technical support for the data communication infrastructure.
e
Set up user liaison mechanism through Information Management Systems unit: The
objective o f this activity i s to facilitate interaction between I T technical s t a f f and
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non-technical users, and the I T User Liaison role exists to bridge the gap between users and
developers. The User Liaison role comprises activities undertaken on an on-going basis as
well as for project-related activities.
Activities will include maintaining periodic but regular contact with a nominated constituency o f
user groups, monitoring satisfaction levels o f users in relation to the software and hardware they
use, identifying and monitoring areas o f dissatisfaction which may be indicative o f a need to
modify or upgrade software or hardware, and assisting user groups to identify and make explicit
the source(s) o f their dissatisfaction and to prepare submissions for change.
Project-based activities will include participating in preliminary meetings between users and
developers, ensuring that the technical project manager creates & maintains the project timeline
and milestones, that periodic progress meetings take place, users are properly trained, that there i s
an end-of-project review meeting, and that lessons learned are documented.
Designing/developing case monitoring and management software: An automated system
will be developed and implemented in connection with the establishment o f the central
taxpayer database. The system will generate a structured case file for every case selected for
a tax audit. The case management system will automatically initiate requests for required
documentation, and will initiate reminders and supplementary information to assist the case
auditors. I t will also track the status o f a case from initiation to conclusion.
Designing/developing the National Intelligence Division WID) and Risk Management Unit
(RMU) software: This sub-component will ensure that the necessary databases needed by
NID and RMU are established, cross-tax accessibility i s provided, and the necessary taxpayer
performance information i s routinely input at source. The cross tax database and the software
will enable search and capture o f cross-related data, tailored to the individual needs o f each
tax department. To t h i s end, current data collected by each tax department would need to be
reviewed and supplementary data requirements and software needs would need to be defined.
Designing/developing the Customs and Tax Fraud Division (CTFD) software: The first
requirement from the CTFD i s to build an I T infrastructure that will enable access to the
databases o f the Revenue Divisions and Customs. Later direct access to Police and other
criminal databases, vehicle registration databases, travel companies etcetera will also be
added.
Designing/developing the Asset Management & Inventory software: This sub-component
will support the asset management and inventory control function for hardware and software
assets o f CBR. Subsequently, other infrastructure assets would also be inventoried and added
to the inventory management system.
Selecting or developing a Human Resource Management (fluapplication
)
and adapting
it to CBR environment. This system will eventually have record for each CBR employee into
the database and relevant personal and payroll information will be maintained.
Designing/developing Taxpayer Facilitation Center (TFC) software. Currently, two major
avenues by which taxpayer facilitation will take place are planned:
CBR Web page: The CBR web page will be used as a key facilitation point and would need to be
-64-
designed in a way to satisfy the needs o f the taxpayers. Currently, several web pages will be
merged or closely coordinated. The web page will potentially be used for training taxpayers,
electronic filing, distribution o f forms, forum for discussions and filing complaints,
registratiodde-registration o f taxpayers, distributing explanatory booklets, and processing
incoming taxpayer queries and responses.
Call Centers: Considering evolving demands, a call center will be established to facilitate taxpayer
contact through e-mail, letters, faxes and telephone calls. The establishment o f a call center will
offer numerous advantages to CBR such as flexibility in locating employees away from the
employment centers and expensive locations, not needing employees who are tax experts, and
better utilization o f staff. To better conduct the functions o f the call center, records o f taxpayer
questions and answers would be maintained in a database which can be referenced by the call
center staff in responding to taxpayer queries. Use o f questions and answers database would result
in uniformity o f answers and enhanced quality o f response. Some o f more frequently asked
questions and related answers can be put on the CBR web site for public use.
In addition to above software, for helping taxpayer facilitation, software for allowing for
registratiodde-registration o f taxpayers would need to be developed. This software will be driven
by a centralized database o f taxpayer identification numbers so as to ensure that the same taxpayer
number i s not assigned to more than one taxpayer by the regional offices. Eventually, taxpayers
would be able to registedde-register through the CBR web site.
Desigddevelop CBR ’s Central Information Depository System: The objective i s to provide
wide, open and transparent access to detailed information conceming the activities, decisions
and the actions o f the administration within CBR. This information will be easily accessible to
employees having authorized access from any region o f the country. The CBR’s Central
Information Depository System (CTFDS) w i l l be the technology solution to all i t s information
needs. CTFDS will replace the current practice o f holding and moving physical information
with a safe and dependable computerized and catalogued information entrykapture & retrieval
system. The CTFDS will maintain the following information in a user and access-friendly
catalogue.
e
Design/develop a centralized integrated database incorporating the functions of software
developed in the sub-components 5.2, 5.3 and 5.4 and the software components described
above: This activity will ensure that taxpayer data for direct, sales and customs tax are all
stored in an integrated database so a unified view o f a taxpayer’s account can be provided to
CBR staff, if needed. The development o f an integrated database will accrue several benefits
to CBR on a going forward basis. Use o f an integrated database will ensure platform
homogeneity, would ensure that various units within CBR would use consistent coding
mechanism and unique taxpayer identification numbers. Currently, CBR i s stymied by
fragmented systems development and use o f an integrated database would alleviate this
problem and foster integrated development.
Responsibility
Office o f Member I M S
cost
Included in Comnonent 2.2
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Member Sales Tax in conjunction with Member I M S will develophpgrade i t s current system,
bringing uniformity and a total systems solution to the entire life cycle starting from (a) registration
to (b) return, (c) reconciliation o f unit accounts (sales vs. purchases), (d) risk based and system
analyzed targeted audit, (e) refund, ( f ) enforcement, (g) appeaVlega1 proceedings and (h)
adjudication. Inorder to provide the total process solution, all relevant sections within a
Collectorate will need to be networked with all end users including the managers. The Sales Tax
Information system will also require off-line access to the central system located at CBR to post
and/or retrieve unit profile information to and from other restricted users, such as other
Collectorates, Direct Tax & Customs.
The Sales Tax Information System would help CBR in moving from routine administration to a
risk management and targeted, post audit based, functional operation. With inputs from return
and audit information, the system w i l l develop a unit profile and transaction account register to
compare, analyze and reconcile purchase information against returns submitted by registered firms
to determine anomalies for possible audit(s), and to register unregistered units. Effective targeting
o f taxpayers for post audit based on risk analysis will require information on all taxpayers. Inthis
subcomponent, CBR would develop a system to register taxpayers from transaction information
fed into the system at the end o f each audit, together with information from other sources and
systems such as Sales Tax returns, Customs and Direct Tax.
The system will also provide modules to enter, retrieve and track audit findings, appeal and
adjudication information. Moreover, the system will be used to produce most pre-formatted
standard communications to taxpayers, such as notices, and will track taxpayer compliance,
prompting tax authorities for the next action. The system will also be used for audit 8i
enforcement resource allocation and will replace manual audit, enforcement and adjudication for
low revenue compliance/impact units.
To support the overall tax administration program, the integrated Sales Tax system will provide
online Act, SROs, Help, and standard and customized management and operational report
facilities.
(Vc)
Direct T a x Information System
I ResDonsibilitv
I Office o f Member I M S
I
I
cost
Included in ComDonent 2.1
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I
I
Direct Tax Administration activities will be automated by the development, upgrade and
modification o f existing processing and information systems. Such systems will significantly
increase the effectiveness and efficiency in the administration o f direct tax and remove potential for
evasion by reducing human error. I t is, however, important to ensure that the systems are fully
integrated with all the tax administration procedures before a significant investment i s made in
computer technology.
Computer processing and information systems will initially be built on a regional basis, with a
view to develop over the mid-to-long term, a centralized master tax file comprising data on each
taxpayer. The file will include, but will not necessarily be limited to, information on each
taxpayer’s account and information from his tax return. The analysis o f information on the master
tax file will be an extremely effective tool for tax administration, particularly when linked to
information from third-party sources.
The Direct Tax Information system will contain the following functionality:
Registration and Accounting. The system w i l l need to maintain up-to-date
(i)
registration information o f all taxpayers, as well as a record o f tax liabilities, payments,
penalties, interest, and transaction dates.
(ii) Identification of Non-Filers and Stop-Filers. The system would identify
non-filers by comparing records on the master tax f i l e with information from third-party
sources, such as banks, utilities, and automobile and property tax records. It would
identify stop-filers by comparing tax returns that have been filed in the past with returns
currently due.
(iii) Verification and Matching of Information. The systems will verify mathematical
calculations on tax returns, as the data are input. I f an inconsistency reveals an error on
the part o f the taxpayer, the system will flag the inconsistency and generate a supporting
notice. The system would also match information on returns with third-party sources to
verify that all income was reported, such as interest paid by banks and dividends paid by
corporations.
Taxpayer Correspondence. The system w i l l be used to handle routine
(iv)
correspondence with taxpayers. This correspondence w i l l include billing for arrears,
notifying taxpayers o f mathematical errors or inconsistencies on their returns, and
notifying non-filers or stop-filers that they must f i l e a return. The correspondence system
will not eliminate the need for face-to-face contact between tax officials and taxpayers, but
will significantly reduce the need for such contact. It will also encourage voluntary
compliance by improving the uniformity (i.e., fairness) o f the tax administration system,
and by letting taxpayers know that the CBR i s using computers to analyze information on
their returns. Perhaps most importantly, it will free-up human resources for other tasks.
(v)
Audit Selection. Selected tax returns will be identified by the system for audit.
Here, one approach i s to develop statistical norms for different classes o f taxpayers, to
measure the extent to which any given taxpayer deviates from the norm for his group, and
to set a priority for audit as a function o f that deviation. Another approach i s to use
statistical techniques to correlate audit results with information on tax returns so that it
- 67 -
will be possible to identify potentially productive audits solely from information on the tax
return.
(Vd)
Customs Information System
cost
Included in Component 2.3
Responsibility
Office o f Member I M S
The CBR i s faced with a choice in either developing a Customs management solution in-house, or
acquiring and customizing a system such as A S Y C U D A H , SOFIX, TIMS or Microclear. Either
option can provide a total systems solution to the entire life cycle o f Customs clearance and other
functions dependent on clearance information such as warehouse, duty exemption and drawback,
duty remission, refund etc. Since Customs will move away from 100% examination to clearing
consignments using risk management and post clearance audit, the system will be designed to
support those schemes. Also, the system will enable importers to launch their declarations
electronically either from a BOE processing center and/or from their own office as a remote user.
The Pilot at Karachi Intemational Container Terminal has adopted Microclear; the results o f the
pilot will determine the platform to be used for organization-wide rollout.
Based on the above broad outline, the Pakistan Customs system will have the following modules
functioning consecutively, i.e., each module dependent on information processed and passed from
the previous module:
(i)
Manifest. After capturing IGMIEGMinformation, the system will screen
,
importers, description o f goods, country o f origin, country o f export, weights, etc against
pre-set green and red l i s t profiles. Green list consignments will wait for lodgment o f the
GD, matching details between the IGM and GD and final clearance from the GD system.
A percentage o f green consignments will be randomly re-directed by the system to red
channels. All red channel consignments will be examined and a pre-formatted examination
report will be entered into the system to validate against the declared (BOE) information.
If validation checks out, the system will allow clearance o f the consignment.
(ii) General Declaration (GD). The GD module will be developed to provide
importers, exporters and their agents, the in-house capability to enter GD information
electronically and/or print the GD for submission to Customs manually, and retain the data
for their future internal use and possible audit by Customs. It will allow the following:
Hardcopy GD data to be entered by Customs operators;
Importers to enter GD data from their offices; and,
Customs agents to launch GD using an authorized GD processing center.
All GDs, regardless o f entry point will go through data validation against coded
information, such as country code, currency code, and tariff (HS code before being
registered and issued a registration number). T o assist users to submit accurate and
complete declarations, the GD module will provide online help for codes, relevant SROs,
Customs A c t and listings o f required supporting documents as per classification, country
o f origidshipment, and exemption, etc.
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(iii) Risk Management/Selectivity.I t i s a wasteful use o f resources and unacceptable
to stakeholders o f modem Customs organizations to give the same amount o f attention to
the law-abiding as to suspect taxpayers. Stakeholders who voluntarily obey the law expect
to receive the benefits, including less Customs intervention, and therefore delays, and the
costs that delays incur. Increasingly, the CBR expects Customs to differentiate between
complying and non-complying stakeholders. T o this end, the CBR will employ Risk
management techques supported by software. Under these, the CBR will identify risks
(potential threats), analyze them to determine their likelihood and consequences, and devise
management and mitigation strategies.
The selectivity module will be the Customs risk management tool for both imports and
export clearances. I t will target consignments based on risk criteria supported and
analyzed by other modules l i k e Manifest, GD, Profile, and Audit etc. The module will
select consignments at item level for physical examinations and documentation checks
(red), or documentation checks only, subject to selective post audit (yellow), or immediate
clearance and selective post clearance audits (green). A certain percentage o f green &
yellow consignments w i l l be randomly redirected by the system to a higher channel.
Additionally, the selectivity module will direct consignments to different groups based on
classification o f the major item o f the declared GD, and randomly select appraisers and
examining officers within each group.
(iv)
Valuation. The system w i l l build the capacity for Customs to refer to a multi
sourced value reference database in order to implement transaction value methods and
protect revenue by controlling and managing both local and international valuation
risk/fi-aud. The selectivity module will be designed to select consignments at the item level,
flagging the value o f an item outside the acceptable range which has the same or similar
commercial description and i s from the same country o f origin. The module will also
provide Customs transaction history from different sources such as the Customs clearance
system, information subscribed from international value reference banks, and data
manually entered from other authorized sources such as the Intemet. The system will
allow users to enter an H S code and find values previously processed and / or stored by the
Valuation authority. It will also allow users to sort the presented data by country o f
origin, by commercial description, or by transaction period. The system will provide a
range o f values (high and low) against each type o f query.
(v)
Appraisement & Assessment. RED and yellow GDs will be evaluated further.
Based on the findings/decision(s) o f the valuation expert, appraiser, andor physical
inspector entered electronically using a fixed structure-reporting tool, the appraiser will
amend the GD for minor errors and initiate an electronic assessment process. The system
will calculate duty and taxes based on approved classification and value, and will keep an
audit trail o f all changes made to the GD.
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Payment. The system will generate an assessment notice at the end o f each
(vi)
assessment (red, yellow or green). Depending on the importer’s/agent’s status with the
Customs, the system will print the assessment notice for manual distribution or send i t
electronically to the selected importerdagents. The customs system will have a payment
module designed to operate from i t s corresponding bank(s) and accept payments in cash,
against credit, or as a debit against preset accounts (for large taxpayers). After
confirmation o f payment, the system will generate a gate pass for manual distribution or
send it electronically to the selected importers/agents for clearing goods. The same
information will also be posted to the port part o f the Customs system and at the gates.
(vii)
Auction. The Customs system will clear items from the manifest and initiate
auction proceedings for all goods not cleared within a specified time. The system will
generate relevant notices to all concerned parties including the inspector for physical
examination o f the goods to be auctioned. It w i l l also capture inspection related
information such as the good’s classification, quantity and weight. The system’s valuation
module will provide the auction’s initial reference value based on the classification
reported by the inspector. And the system will capture post auction information and
update manifest records.
(viii)
Post Clearance Audit. A systems-based approach will be adopted for post audit
based on risk factors and audit principles. The audit management module will use
pre-defmed criteria to provide management with a l i s t o f importers and GDs for possible
post clearance audit. The list i s based on high to low risk importers/GDs. Management
will use the l i s t to select the required number o f GDs or importers to audit within a period
based on available resources.
(ix)
Profile. Profiles o f all importers, exporters, bond operators and agents will be
maintained by the system, capturing information from each stage o f the GD processing
life. Each profile will have a multi-dimensional outlook - such as the importer’s profile
connected to, the export profile (if any), the profile o f similar importers, the commodity vs.
value profile o f the same importer against others, the agent’s profile, and how it relates to
other importers’ profiles etc. Each profile will also have audit, penalty and adjudication
information, where necessary.
Coefficient. Coefficients are maintained for various schemes such as duty
(x)
exemption, duty remission, and licensed manufacturing warehouses etc., calling for the
reconciliation o f export and import data at the raw material level. This will be managed
electronically by applying a single coefficient rate determined by the IOCO for each
product and against each unit o f export. The system will apply all duty and taxes
applicable to each imported raw material against the value determined by the IOCO using
the customs valuation module. The system will then provide a single rate o f
refund/exemption against each unit o f manufactured product after adding the duty and tax
incidents o f all the imported raw materials. Both duties and value changes will be updated
periodically on a schedule to be determined by the IOCO. The rate will be published and
available at the CBR’s Website.
- 70 -
Duty Drawback. Applying the coefficient scheme, the customs system will
(xi)
process duty drawback as soon as export takes place. It will calculate the drawback and
make this information electronically available. The system will post the drawback amount
against the exporter’s import account in the payment module as credit against future
imports, and / or immediate payment from the corresponding bank(s).
Duty Remission & Manufacturing Bonded Warehouse. The customs system
(xii)
will determine the system-calculated quantity o f imports o f all raw materials against any
particular export order and apply t h i s to all imports under duty remission and
manufacturing bonded warehouses. I t w i l l also capture relevant export data such as the
export date, flag possible audits for non-compliance, and initiate procedures to cash bank
guarantees or bonds.
Transshipment. The customs system will identify transshipments and monitor the
(xiii)
movement o f the goods until release.
(xiv)
Management Report. The management reporting module o f the Customs system
will provide both management and statistical reports currently used by the CBR, and also
allow ad hoc queries. I t will be used at both central and field locations, and will generate
information regarding revenue collection by chapter, H S Code, and commodity etc. It will
also provide comparison statements between budget and actual collection at any given
date.
Help Customs Module. The Customs Help module will provide officials with
(xv)
access to the Customs Act, SROs, internal rules & guidelines, profiles o f major
stakeholders, revenue, and activities by H S Code.
-
Project Component 6 USS24.00 million
6.
Infrastructure Up-gradation and Development
The component will focus on:
0
0
0
0
0
0
0
0
0
0
upgrading the quality and quantity o f work spaces, equipment and supplies;
consolidation o f 96 tax offices into 60 in 15 regions, and refurbishment o f premises;
construction o f new buildings as required for the modernization effort;
increasing rent ceilings and lease periods to facilitate the acquisition o f appropriate
accommodations;
establishment o f residential accommodation for staff;
buildingtaxpayer services facilitation centers within main buildings or at targeted locations;
establish dedicated reception and service areas for taxpayers for consultations with CBR
representatives;
renovate existing buildings andor construct new buildings for the co-location o f direct tax and
sales tax in preparation o f the eventual integration o f these functions;
rationalize budget requirements and forecasting capacity and ensure supplies and services o f RTU,
LTUs, and TFCs at required levels;
prepare an infrastructure plan to accommodate the I T needs o f the CBR as they evolve with the
business processes engineering roll-out as well as the I T needs for the Headquarters management
- 71 -
0
function; and,
rationalize the transportation requirement o f the CBR in line with the new functional and
operational requirements.
-
Project Component 7 US$3.06 million
7.
Program Management and Implementation
This component would finance implementation o f the project including setting up o f a Project Managment
Unit (PMU) to:
be responsible for overall project co-ordination, monitoring and reporting. There will be an
on-going dialogue and feedback with CBR management and the project stakeholders to ensure
ownership and to promptly resolve problems.
provide overall coordination as well as take responsibility for managing the incremental changes
necessary to effect implementation o f each component and related activities o f the Project;
report on Project implementation and manage all disbursement and financial management activities
under the project;
establish monitoring and evaluation component o f the project for performance measurement;
monitor ratio o f revenue collected to GDP, taxpayer satisfaction surveys, audit enforcement, labor
efficient processes, the use o f I T and the improved organizational structure; and,
develop a baseline scenario with objective and subjective performance targets.
- 72 -
Annex 3: Estimated Project Costs
PAKISTAN: Pakistan Tax Administration Reforms Project
!--
I
Project Cost By Component
Management and Institutional Development
Improving Revenue Operations
Strengthening Revenue Services
Tax Compliance Culture
Adopting Responsive I T Systems
Infrastructure Up-gradation
Programme Management
PreparationAdvance
Total Baseline Cost
Physical Contingencies
Price Contingencies
1
Total Project Costs
Front-end fee
Total Financing Required
1.43
15.75
0.94
0.88
0.47
24.00
1.90
0.05
45.42
0.00
0.00
45.42
7.86
77.42
5.68
5.39
3.18
0.00
1.20
2.85
103.58
0.00
0.00
103.58
9.29
93.17
6.62
6.27
3.65
24.00
3.10
2.90
149.00
0.00
0.00
149.00
45.42
0.00
103.58
0.00
149.00
Project Cost By Category
Goods
Works
Technical Assistance
Training
Programme Management
ICT (Customized Software)
ICT (Server, PC, SW General, Office Eq, UPS, Data Comm)
Other
Total Project Cost:
3.00
24.00
1.93
1.oo
1.90
6.50
7.04
0.05
45.42
0.00
0.00
14.12
9.00
1.20
47.80
28.61
2.85
103.58
Front-end fee
0.00
Total Financing Required
45.42
103.58
The taxes are included as part o f Government contribution. The total project's cost also includes US$ 23
million with equivilant DFID financing
1
3.00
24.00
16.05
10.00
3.10
54.30
35.65
2.90
149.00
0.00
149.00
Identifiable taxes and duties are 10.08 (US$m) and the total project cost, net o f taxes, i s 138.92 (US$m). Therefore, the project cost sharing ratio i s 74.07%
o f total project cost net o f taxes.
- 73 -
Annex 4: Cost Benefit Analysis Summary
PAKISTAN: Pakistan Tax Administration Reforms Project
[For projects with benefits that are measured in monetary terms]
I
costs:
US$ million
Net Benefits:
US$ million
I
(92)
I
(134)
34,836
34,418
315.7
302.3
IRR:
?4n
I
I
I
1
If the difference between the present value of financial and economic flows i s large and cannot be explainedby
taxes and subsidies, a brief explanation o f the difference i s warranted, e.g. "The value o f financial benefits i s less
than that o f economic benefits because o f controls on electricity tariffs."
Summary of Benefits and Costs:
Background
Making tax revenue projections in Pakistan has been complicated by a wide ranging tax reform that has
been going on for over fifteen years now. The structure and rates o f taxes have changed much during this
period making previously estimated relationships between tax revenue and i t s base obsolete. Now, federal
tax revenue i s generated mainly by four major taxes which are direct taxes, sales tax, customs duties, and
central excise duties. Following the accelerated implementation o f the T a r i E R e f o m after 1993, and the
introduction o f GST on the basis o f value added in 1990, the shares o f various taxes in total revenue has
changed sharply. The share o f direct taxes in total federal tax revenue has increased from 18% in 1990191
to over 32% in 2002103. Almost 95% o f direct tax revenue i s generated by income and corporate taxes
and the rest i s generated through workers' welfare fund, capital value tax and other minor receipts. The
major share o f revenues from income and corporate taxes, (about 55%) i s now generated through
withholding taxes, and the rest i s contributed through voluntary compliance (i.e., payments received with
returns) and demand creation by assessment o f returns after their receipt. However, the contribution o f the
latter i s expected to fall in future due to the introduction o f universal self-assessment in income tax.
With the introduction o f VAT mode o f General Sales Tax (GST) and i t s subsequent expansion to include
services and utilities in its base, its contribution to federal revenue receipts has increased from 15.4% in
1990191 to 44.7% in 2002-03. There are two important components o f GST: sales tax on consumption o f
domestically produced goods and services and sales tax on imports. A standard rate o f 15% i s currently
applicable on both, domestically produced and imported goods with a few exceptions where higher rates
are applicable, essentially on commodities that are traded by un-registered businesses and individuals.
- 74 -
The dependence on intemational trade taxes in the shape o f customs duties has declined over this period.
The share o f customs duties in federal revenue receipts has reduced from 45.7% in 1990-91 to 12.3% in
2002-03 mainly due to the reduction o f maximum tariff rate from 125% to 25% during the last decade and
through the decrease o f the number o f tariff slabs to only four. Due to these tax policy changes, the
effective rate o f customs duties on total imports has come down to 10.2% in 2003-04.
Revenues from central excise duty have also declined as the duty i s gradually replaced by GST. Its
coverage has been reduced to a few commodities which now include cement, cigarettes, beverages, POL
products and natural gas. Reflecting the shrinking base, i t s share in total federal revenue collection has
declined from 20.9% in 1990/91to 10.9% in 2002-03.
Share of Direct and Indirect Taxes in Federal Receipts
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-0 1
200 1-02
2002-03
Indirect Taxes
Total
Customs
82.0
45
79.6
44
40
76.0
74.9
37
34
72.6
70.9
33
31
69.9
25
65.0
64.2
21
67.5
18
68.2
17
64.7
12
15
68.1
Direct Taxes
18.0
20.4
24.0
25.1
27.4
29.1
30.1
35.0
35.8
32.5
31.8
35.3
32.9
Source: Central Board o f Revenue
- 75 -
Sales Tax
14
15
15
18
19
19
20
18
23
34
39
41
43
Excise Dut
23
21
21
20
19
19
20
21
20
16
12
11
10
The changing structure o f taxation has made projecting revenue a difficult exercise. Throughout the
1990’s, projections o f government revenues turned out to be overly optimistic. The discrepancies between
projections and outturns were so large as to make it difficult to assess whether poor program
implementation was the cause or the consequence o f these discrepancies. GDP growth rate was
overestimated on average by 2 percentage points from 1993 onwards. Coupled with unrealistically
ambitious tax revenue/GDP targets, revenue projections never materialized. This was partly because
building a budget on the basis of overly optimistic revenue projections avoided making tough expenditure
restraining decisions. But more importantly, two mutually reinforcing problems occurred during this
period. First, the strategic orientation o f shifting taxation from intemational trade to domestic activities
proceeded at an uneven pace causing sequencing problems. W h i l e the reduction in tariffs on trade was
fast, it took much longer for the GST to yield comparable revenue. Second, attempts to meet fiscal deficit
targets led to frequent ad hoc tax and expenditure cut measures. While hikes in tax rates appeared in the
short term to be effective in raising revenue, in the medium term it may have contributed to reducing the
tax base further by encouraging tax evasion. All this was further reinforced by severe tax administration
weaknesses and widespread tax exemptions.
In making revenue projections for 2004/05 to 2008/09, it i s noteworthy that the share o f indirect taxes in
total revenue has stabilized in the range 67%-68% during the last four years which implies that the tax
reform has more or less worked itself through and i t s impact on revenue shares i s unlikely to be
unpredictable. In addition, the pilot initiatives in tax administration have produced positive results.
Hence, revenue projections are less likely to fail due to failure in projecting tax/GDP values than due to
overestimation o f GDP growth rates. In t h i s context it i s useful to note that 2002/03 was the f r s t time
that the start-of-the-year revenue target (Rs.460 billion) was achieved and the target (Rs.510 billion) for
2003/04 was also realized.
In order to project revenue collections for the next five years o f project life, it i s important to take account
o f some important aspects o f individual taxes and the changes that have taken place in recent years.
The growth o f direct tax revenue reflects the income tax base o f 2.21 million individual and 24,438
corporate taxpayers, increasing annually by 8% and 7% respectively. The buoyancy o f the tax has been
enhanced by the withdrawal o f exemptions and extending the withholding tax regime. There are now 25
types o f transactions subject to WHT, increasing from 6 in 1979. Looking ahead, with a growing number
o f taxpayers, the reliance on WHT i s being reduced under the tax reforms.
The number o f sales tax registrants has also increased from 33,000 in 1996197 to 160,000 in 2002/03.
And GST has been extended to most commodities and utilities and services.
Tax-GDP Relationship:
The relationship between federal tax revenue and i t s base (GDP at market prices) has been examined on
the basis o f regression analysis. Elasticity estimates were obtained for three sample sizes. The largest
sample included data from 1980/8 1 to 2002/03 including pre-reform, reform and post reform periods.
The second sample examined the relationship for the period after the start o f the reforms over the period
1990/9 1 to 2002/03. Finally, the third sample examined the relationship over the period following the
completion o f the first round o f tax policy reforms, from 1997/98 to 2002/03.
The results indicate that the taxation structure has turned buoyant overtime. The elasticity o f tax revenue
with respect to GDP has increased from 0.978 for the first sample to 0.991 for the second sample. I t has
further increased to 1.158 on the basis of the most recent sample. I t may be added that despite the obvious
- 76 -
reduction in degrees o f freedom, the regression estimates for the recent period sample yielded fairly close
projections o f tax receipts, however, the adjusted elasticity of 1.2 has been used.
Projections of Federal Tax Receipts:
Revenue projections have been made using IMF projections o f GDP and inflation which &e consistent
with the Public Sector Debt Sustainability Framework (PSDSF) for 1998/99 - 2008/09. An adjusted
elasticity estimate o f 1.2 has been used for projections.
Projections o f Tax Revenue
(Rs. Billion)
Revenue
Projections
2003-04
2004-05
2005-06
632
2006-07
2007-08
12008-09
703
784
875
I
I
*actual collection
A Comparison of Projections with PRSP Outlook:
The Poverty Reduction Strategy Paper (PRSP) projections o f federal tax receipts are higher and the
difference rises to Rs.20 billion over five years. The projections start from a higher base due to better
collections in 2003-4.
2003-04
2004-05
2005-06
2006-07
2007-08
Revenue
Projections
517
PRSP
Outlook
510
784
Pakistan's Federal Bureau of Statistics completed in May 2004 a comprehensive revision of the national
accounts statistics. Ths base was moved from I980/81 to 1999/00 and several new sectors of economic
activity were included. The results of this revision are a nominal GDPfor 1999/00 and subsequent years
that are about 20% higher than previously estimated levels. The Project Appraisal Document (and the
IMF's Eighth Review document ofJune 2004 and the Bank's PRSCprogram document of August 2004)
uses the "old" GDP series.
Assumed Growth o f Real GDP under Alternative Sources
(yercentages)
I
- 77 -
Note: PSDSF : Public Sector Debt Sustainability Framework;
The second reason for the high growth in tax receipts under PRSP i s the assumed values o f tax/GDP
ratios in the coming years. The PRSP assumes that this ratio will increase from 11.5% in 2003/04 to
12.5% in 2007/08. On the other hand, under projections used here, t h i s ratio increases steadily from 11.74
to 13.5 during the same period.
Derived and Assumed TadGDP Ratios
TadGDP
2003-04
I 2004-05
I 2005-06
2006-07
2007-08
I
I
Our Study
11S O
11.73
11.87
12.01
12.16
I
I
PRSP
11.5
11.7
11.9
12.2
12.5
I
I
Conclusion
For purposes o f estimating the economic benefits o f the project and to conduct financial cost benefit
analysis, this study has adopted revenue projections based on tax/GDP ratios derived from a GDP elasticity
o f revenue o f 1.2.
The reliability o f revenue projections will depend to a great extent on predicting GDP growth rates
correctly. This study i s inclined to adopt the more conservative projections o f GDP growth rates because o f
the continuing low investment ratios. Although the tax - GDP elasticity includes the impact o f some o f the
policy and administration reforms introduced during the last few years, it was adjusted downwards to
account for one t i m e impact o f few o f the measures. It i s important to understand that the policy reforms
introduced during the last several years including reduction o f customs tariffs, lowering o f income tax
rates, increasing income exemption l i m i t s and abolition o f wealth tax has had a negative effect on revenues
but over time are expected to result in widening the base.
- 78 -
Tax Revenue and GDP Elasticity Estimates
I
2003-04
2004-05
2005-06
2006-07
2007-08
Sample Period
Elasticity Estimate
1980181 - 2002103
0.978
1990191 - 2002103
0.99 1
1997198 - 2002103
1.158
Adjusted elasticity
1.2
4404
4836
5321
5855
6449
(used in this study)
4420
4875
5397
599 1
6668
517
567
632
703
784
Economic Benefits of Restructuring T a x Administration
The Tax Administration Reform has seven components: (i)
Management and Institutional Development;
(ii)
Improving Revenue Operations; (iii)
Strengthening Revenue Services; (iv) Creating a Tax Compliant
culture; (v) Adopting Responsive I T Systems; (vi) Infrastructure Up-gradation and Development; and, (vii)
Project Management and Implementation. There are many aspects o f reforms within these components
some o f which are highlighted here to identify the economic benefits that are likely to accrue from the
project.
As part o f improving revenue operations, the CBR aims to adopt a functionally integrated tax
administrative system which will avoid the current practice o f costly duplication o f functions such as audit,
collection and enforcement across departments. The present system makes it more difficult and costly for
taxpayers with multiple tax dealings as well to comply with tax laws. Inparticular, the current direct tax
system i s both costly and ineffective, and inconveniences taxpayers and opens them to potential abuse by
officials. The reforms will overcome these shortcomings and establish the capacity to quickly detect
taxpayer non-filing and non-payment. The reforms in sales tax administration will address the limited
number o f ST registrants and their poor compliance, as well as improve timeliness and accuracy o f refunds.
Reforms in customs will modemize import and export clearance procedures and enhance trade facilitation,
thus reducing the cost o f doing business in Pakistan while reducing evasion o f customs duty. As part o f
strengthening revenue services, the reforms will reduce tax and customs fraud which poses a serious
economic and industrial threat to the private sector. All these measures are likely to reduce tax
administrative costs, enhance tax revenue, reduce private sector tax compliance costs and reduce
economy-wide cost o f doing business in Pakistan.
As part o f strengthening revenue services, the tax audit functions will be separated and streamlined,
developing an automated approach to selection, based on risk assessment o f under-reporting and
- 79 -
under-payment o f taxes. This w i l l reduce the number o f audits across the economy saving private sector
compliance costs, but at the same time improve tax compliance and increase revenue.
The information technology strategy w i l l enable CBR to achieve i t s revenue and reform targets in a
transparent, timely and accurate manner. I T will help improve management, increase transparency in tax
administration, reduce interaction with taxpayers, broaden the tax net, increase revenue and facilitate trade.
The gains from all these will accrue to the government in terms o f more revenue, lesser costs, and to the
private sector in terms o f greater predictability, more level playing field, lower costs o f compliance and
doing business.
The main economic benefits o f the tax administration reforms can thus be summarized as:
an increase in government revenues as a result o f widening o f the tax base in terms o f more
taxpayers and more transactions coming into the tax net out o f the grey or underground economy;
(ftnancial benefits);
improvement in customs procedures aim to reduce the average time to clear customs from the
existing 8 days to 1 day by the end o f the project period. This will reduce the cost o f doing business
since it will reduce the number o f days importers need to borrow from banks to finance imports;
improvement in voluntary tax compliance rates implying early revenue generation for the
government, saving interest payments and administrative costs related to enforcing compliance;
reduction in taxpayers’ costs associated with tax compliance;
economy-wide gains to the private sector as an increasing number o f economic agents operate
under the same set o f rules and taxes, enhancing competition (more level playing field); and,
greater predictability o f tax liability and lower costs o f doing business for the private sector.
All the economic benefits o f tax administration are not measurable. In this exercise, only the first four
benefits summarized above have been measured and included in the financial costhenefit analysis:
The financial benefit o f tax administration reform in terms o f higher tax/GDP ratio. The CBR
tax/GDP ratio rose to a peak o f 12.6 in 1995/96, declining in subsequent years and averaging
about 11.5 over the last 8 years. This exercise has taken this average as the norm, and attributed
all improvement in the tax/GDP ratio in future years to tax administration reform in terms o f
widening o f the tax base. The financial benefit i s the increase in revenue due to improvement in the
ratio.
11. Reduction in number o f days it takes to clear customs means lower interest costs for private sector
calculated using the value o f total imports, average bank lending rate and savings in days to clear
customs.
...
111. Improvements in voluntary tax compliance rates means revenue will accrue to the government at an
earlier date than before the reform, which could involve a lengthy period o f audit and possible
litigation. The gains to the government are equivalent to the potential interest earning on increased
voluntary compliance revenue, where the average interest rate on public debt reflects the potential
earnings o f revenue. Data on voluntary tax compliance i s available for direct taxes during the last
two years, the period o f reforms. I t i s assumed that the improvement will continue at the current
pace for the next 12 years.
iv. Reduction in taxpayers’ costs asspciated with tax compliance can only be estimated for corporate
taxpayers. I t i s assumed that this i s in terms o f reduction in time spent by corporate accountants
and staff to comply with direct tax, sales tax and customs regulations. Various assumptions were
made regarding the number o f accountants, their average salaries and the average time savings.
1.
- 80 -
Main Assumptions:
Following are the main assumptions used to determine the Present Value o f the flows:
0
0
0
0
GDP and inflation projections: GDP rising gradually to 6% in year 7 and remaining constant
subsequently; inflation fixed at 4%
Exchange rate fixed at Rsl$= 57.5
Discount rate for N P V calculations = 5%
CBR W G D P derived from GDP elasticity o f revenue o f 1.2; the ratio rises from 11.74 in
2003104 to 13.5 in 2008109
Sensitivity analysis / Switching values of critical items:
The IDA loan i s for a period o f 35 years and strictly speaking the cost benefit analysis should span that
period. But in order to analyse the viability of the project over a period o f 10 years following the dispersal
of the loan, the analysis i s restricted to a 15 year period, assuming an early retirement o f the loan. This will
bias the P V estimates o f costs to be higher.
Cost o f the project:
IDA loan
GOP contribution
Grant (DFID)
$loomil
!$ 2 2 m i l
$ 23mil
(Terms: 0.5%’ 35 years, 10 yr grace)
(no impact on costs)
The contribution o f the GOP and IDA are disbursed during the f i r s t six years o f the project. The repayment
o f the loan starts in the sixth year, 35 equal installments for the f i r s t 6-14 years, with the remaining balance
repaid in the 15th year to allow the analysis to be restricted to a 15 year period.
The analysis was carried out in a number o f variants. The first i s a standard analysis, in which the future
stream of revenue i s calculated on the basis o f a GDP elasticity o f revenue o f 1.2. In the second variant, an
iterative process i s used to estimate the stream o f revenue, which will make the present value o f financial
benefits equal the present value o f costs o f the government. In the third variant, the cost benefit does not
take into account revenue benefits o f the government and focuses only on the benefits included in the
economic benefits (excluding the financial benefits). In the final and fourth variant, total revenue
projections are the same as in the first variant (based on an elasticity o f 1.2) but the increase in revenue
attributable to the tax administration reform i s limited to the increase in revenues expected from LTUs and
MTUs.
For all these variants, the cost o f the project has been treated in two ways. In the first, the analysis has
treated the government’s initial investment as equity and the IDA loan as a standard loan, treating
repayment o f the loan over 15 years as continuing costs o f the government (standard treatment) to calculate
the ‘government’s NPV o f costs and benefits’. As an alternative, the analysis treated the entire cost o f the
project as equity investment and calculated the ‘project’s N P V o f costs and benefits’.
Assumptions:
GDP and inflation projections: GDP rising gradually to 6% in year 7 and remaining constant
subsequently; inflation fixed at 4%
0
Exchange rate fixed at Rs/$= 57.5
0
Discount rate for N P V calculations = 5%
a
CBR W G D P derived from GDP elasticity o f revenue o f 1.2; the ratio rises from 11.74 in
a
- 81 -
2003104 to 13.5 in 2008109
Results:
Variant 1:
N P V o f Financial Benefits
= $34,552 million
N P V o f Economic Benefits
= $34,928 million
N P V o f Government Costs
= $ -92 million
The NPV o f government costs are insignificant compared to the financial and economic benefits o f the
project. Naturally the IRR o f the project i s very high.
FRR o f Project for the Government
= 521.9 %
Even if the entire cost o f the project i s treated uniformly, and the loan i s also treated as investment cost
early in the period, so that NPV o f costs i s increased, benefits are still much larger than the NPV o f
costs.
NPV o f Project Costs (Treating loan as initial cost) = $ -134 million
FRR o f Total Investment
= 302.3%
Variant 2:
The stream o f revenue which will equate the N P V o f financial benefits to NPV o f Government expenses i s
given below together with the implied CBR RevenuelGDP ratios.
CBR RevlGDP
I Revenue Proiection Rs. bill.
I
I NPV o f Fin. benefits $ mn
I NPV o f Econ. benefits $ mn
I N P V o f Govt. Expenses $ mn
I N P V o f Proi. Exuenses $ mn
I
I
I
I
ERR o f Govt. Project
ERR o f Project
11.45
460
I
I
11.51
517
I
I
11.51
584
I
I
11.51
668
I
I
11.51
755
I
I
11.51
852
I
80 I
444 I
-801
-I151
54.9%
26.5%
The minimum revenues required to equate the N P V o f financial benefits to NPV o f costs will result in
economic benefits that far exceed the costs o f the project and the ERR o f the project will still be
significantly higher than the rate o f discount. The minimum required revenues are also much less than the
projected revenues in section 1 o f this paper.
variant 3:
The stream o f non-financial benefits (excluding govemment revenues) during the first 6 years i s given
below:
Project year
Non-Financial Benefits $ mn
11
2.88
I
21
5.88
I
31
12.51
I
41
20.43
I
51
29.81
I
6
32.87
The benefits o f the project excluding increases in govemment revenue are substantial. The N P V o f these
benefits i s much greater than the costs o f the government and the project costs. The ERR remains
- 82 -
significantly positive.
I N P V Non-Fin. benefits $ mn
I
370
I
Variant 4:
Attributingonly the additional revenue from LTUs to the Tax Administration Reform instead o f the entire
revenue increase resulting from improvement in the tax/GDP ratio, means the financial benefits from the
project are reduced. Yet the N P V o f financial benefits outweight he NPV o f costs by a big margin.
Add. Rev. from LTUs, MTUs &
others (Rs bn)
I
I
N P V o f F i n . benefits $mn
N P V o f Econ. benefits $ mn
N P V o f Govt. Expenses $ mn
NPVofProj.Expenses$mn
0
I
I
1,684
2,06 1
-80
-115
7.9
9.3
18.1
11
9.8
I
I
Conclusions:
The results o f the cost benefit analysis show that the project’s viability i s independent o f the assumptions
used.
If the economic benefits that could not be measured were included in the analysis, the benefits to the
government and the economy would be even higher.
- 83 -
9.6
Annex 5: Financial Summary
PAKISTAN: Pakistan Tax Administration Reforms Project
Years Ending
Total Financing
Required
Project Costs
Investment Costs
Recurrent Costs
Total Project Costs
Front-end fee
Total
Financing
Financing
IBRDllDA
Government
Central
Provincial
Go-financiers
User FeeslBeneficiaries
Other
I
Year1
I
Year2
1
Year3
I
Year4
I
Year5
1
Year6
I
Year7
30.4
1.o
31.4
0.0
31.4
42.3
0.8
43.1
0.0
43.1
33.3
0.6
33.9
0.0
33.9
23.5
0.4
23.9
0.0
23.9
16.5
0.2
16.7
0.0
16.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
18.4
8.0
0.0
0.0
5.0
0.0
0.0
31.4
32.0
6.1
0.0
0.0
5.0
0.0
0.0
43.1
24.2
4.7
0.0
0.0
5.0
0.0
0.0
33.9
15.9
3.0
0.0
0.0
5 .O
0.0
0.0
23.9
12.4
1.3
0.0
0.0
3 .O
0.0
0.0
16.7
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
Total Project Financing
Main assumptions:
The Project will be implemented over a period o f five years.
As few o f the major contracts are expected to be awarded in the first year, bulk o f the costs will incur in the
initial years o f project implementation.
- a4 -
Annex 6(A): Procurement Arrangements
PAKISTAN: Pakistan Tax Administration Reforms Project
Procurement
Procurement Capacity
Central Board o f Revenue (CBR), will primarily be responsible and accountable for implementation o f the
project including carrying out procurement. Procurement activities will be carried out by Project
Directorate. The agency i s staffed by a Project Director and the Procurement unit will be staffed by
specialist procurement officers.
An assessment o f the capacity o f the Implementing Agency to implement procurement actions for the
project has been carried out by Procurement Accredited Staff during appraisal. The assessment reviewed
the procedures, organizational structure for implementing the project and project’s staff responsible for
procurement. No significant areas o f weaknesses were identified, since the P M U has experience o f the
Bank’s procurement procedures. However, there may not be any dedicated procurement staff in the field
offices and there i s a general lack o f expertise in th Bank’s procurement procedures. In i t s responses the
P M U appeared to be more reliant on the Bank‘s Guidelines as a primary procurement process. I t was
explained that the Bank would like to see the enhancement o f the CBR’s procurement capacity so as to
gradually move towards accreditation.
In order to strengthen procurement capacity, the staffing plan includes the appointment o f a Procurement
Specialist, who i s expected to be on board soon. This will contribute to the Project’s procurements being
completed efficiently in accordance with the Bank’s guidelines. Once the person i s appointed, training on
WB Procurement Procedures would be required. The training would also be extended to a wider audience
if procurement for the project i s carried out in the field offices.
Procurement Methods
Procurement for the proposed project would be carried out in accordance with the World Bank’s
“Guidelines: Procurement Under IBRD Loans and IDA Credits” dated M a y 2004; and “Guidelines:
Selection and Employment o f Consultants by World Bank Borrowers” dated M a y 2004, and the provisions
stipulated in the Legal Agreement. The general description o f various items under different expenditure
category are described below and summarized in Table A. For each contract to be financed by the Credit,
the different procurement methods or consultant selection methods, the need for prequalification, estimated
costs, prior review requirements, and time frame are agreed between the Borrower and the Bank project
team in the Procurement Plan. The Procurement Plan will be updated at least every eight months or as
required to reflect the actual project implementation needs and improvements in institutional capacity.
All expected procurement o f goods, works and consultants’ services will be listed in the project’s General
Procurement Notice (GPN). The GPN will be published in the United Nations Development Business
(UNDB). All I C B contracts will be published on UNDB on-line, independent o f the value o f the contract.
Civil Works:
- 85 -
Works procured under this project, would include renovation and refurbishment for CBR, MTUs, LTUs,
Direct and Sales Tax, and Customs. Civil works generally comprise contracts for new as well as upgrading
o f existing buildings, and are not expected to attract the interest o f foreign contractors. Accordingly, all
civil works under the project will be procured through National Competitive Bidding (NCB) procedures
acceptable to-Bank's Standard Bidding Documents (SBD) for all National SBD agreed with (or
satisfactory to) the Bank.
However, ifforeign f i r m s wish to participate in these contracts, they will be permitted.
Goods
Goods under the Project would generally include computers, proprietary software, office equipment, motor
vehicles and furniture. International Competitive Bidding (ICB) procedures will be followed for each Goods
contract estimated to cost more than US$200,000 equivalent. Domestic preference will be allowed to local
manufacturers on I C B contracts. Goods estimated to cost between US$50,000 equivalent andUS$200,000
per contract will be procured through National Competitive Bidding (NCB) procedures acceptable to IDA.
Small value off-the-shelf goods estimated to cost US$50,000 equivalent or less per contract are expected to
be procured following Nationalhntemational Shopping procedures in accordance with the Procurement
Guidelines.
Improvement of Bidding Procedures under National Competitive Bidding
The following improvements in bidding procedures will apply to all procurement o f Goods and Works
under National Competitive Bidding, in order to ensure economy, efficiency, transparency and broad
consistency with the provisions o f Section 1 o f the Guidelines:
0
0
0
0
0
0
0
0
0
0
0
0
Invitation to bid shall be advertised in at least one national newspaper with a wide circulation, at
least 30 days prior to the deadline for the submission o f bids;
bid documents shall be made available, by mail or in person, to all who are willing to pay the
required fee;
foreign bidders shall not be precluded fiom bidding and no preference o f any kind shall be given to
national bidders in the biddingprocess;
bidding shall not be restricted to pre-registered firms;
qualification criteria shall be stated in the bidding documents;
bids shall be opened in public, immediately after the deadline for submission o f bids;
bids shall not be rejected merely on the basis o f a comparison with an official estimate without the
prior concurrence o f the Association;
before rejecting all bids and soliciting new bids, the Association's prior concurrence shall be
obtained;
bids shall be solicited and contracts shall be awarded on the basis o f unit prices and not on the
basis o f a composite schedule o f rates;
contracts shall not be awarded on the basis o f nationally negotiated rates;
contracts shall be awarded to the lowest evaluated and qualified bidder; and,
post-bidding negotiations shall not be allowed with the lowest evaluated or any other bidders.
Consultants' Services:
The credit will finance several consultancy assignments and short and long term nationaVIntemationa1
individuals for the implementation agencies for management advice in policy reforms, studies, etc.
- 86 -
Contracts with consulting f m s estimated to cost more than $200,000 per contract will be procured in
accordance with Quality and Cost Based Selection procedures. Contracts estimated to cost less than
$100,000 per contract may be procured through the method o f Selection Based on Consultants'
Qualifications. For contracts with consulting f m s estimated to cost less than $500,000 equivalent per
contract, the shortlist o f consultants may comprise entirely national consultants in accordance with the
provisions o f paragraphs 2.7 o f the Consultant Guidelines. Contracts with individual consultants will be
procured in accordance with the provisions o f paragraphs 5.1 to 5.4 in Section V o f the Consultants
Guidelines. In view o f some specialized training that may be needed by a few agencies, the services o f
universities/ institutions to impart this training may be procured through 'single source selection' in
accordance with the provisions o f paragraphs 3.9 to 3.13 o f the Consultants Guidelines.
Training and Workshops :
The credit will finance long term and short term staff development programs both local and foreign for the
staff. In addition, there will be a series o f national workshops conducted by the participating agencies to
enhance staff capacity.
ProcurementPlanning
Procurement under the project will be carried out in accordance with the agreed procurement plans.
Procurement plans will be closely monitored and updated every eight months.
Review of Procurement by the Bank (Table B)
Prior Review:
0
The first N C B contract for Goods o f the each Participating agency, irrespective o f value, and
thereafter each contract for Goods estimated to cost US$200,000 equivalent or more.
0
The first N C B contract for works o f the each Participating agency, irrespective o f value, and
thereafter each contract for Works estimated to cost US$200,000 equivalent or more.
0
The first Consultants' Services contract with consulting f i r m s o f each Participating agency,
irrespective o f value, and the first consulting services contract with individual consultants o f the
each Participating agency, irrespective o f value, and thereafter all contracts with f i r m s estimated to
cost US$lOO,OOO equivalent or more, and with individuals estimated to cost US$ 50,000 equivalent
or more.
All other contracts will be subject to Post-Review by the Bank. The Implementing Agency will send to the
Bank on a quarterly basis, a list o f all contracts subject to post-review.
Procurement Information and documentation
Procurement information will be recorded and reported as follows by the Implementing Agency:
1. Complete procurement documentation for each contract, including bidding documents, advertisements,
bids received, bid evaluations, letters o f acceptance, contract agreements, securities, related
correspondence etc., will be maintained by each implementing agency in an orderly manner so as to
readily available for audit.
2. Contract award information will be promptly recorded and contract rosters, in the Bank's sample
format, maintained by the Implementing Agency.
- 87 -
3. Comprehensive quarterly reports by the Implementing Agency indicating:
0
0
0
revised cost estimates, where applicable, for each contract;
status o f on-going procurement, including a comparison o f originally planned and actual dates o f
the procurement actions, including preparation o f bidding documents, advertising, bidding,
evaluation, contract award and completion time for each contract; and
updated procurement plans, including revised dates, where applicable, for the procurement actions.
Procurement methods (Table A)
Table A: Project Costs by Procurement Arrangements
(US$ million equivalent)
1
I
Expenditure Category
ICE
Procurement Method’
NCB
Ot he:
4. Training and Workshops
Figures in parentheses are the amounts to be financed by the Bank Loan. All costs include contingencies.
I’
2’
Includes civil works and goods to be procured through national shopping, consulting services, services of
contracted staff of the project management office, training, technical assistance services, and incremental operating
costs related to (i)
managing the project, and (ii)
re-lending project funds to local government units.
- 88 -
Table A I : Consultant Selection Arrangements (optional)
(US$ million equivalent)
(0.00)
Total 108.37
(0.00)
(0.00)
1.50
(0.00)
(0.00)
0.00
(0.00)
(0.00)
0.00
(0.00)
(0.00)
0.00
(0.00)
(0.00)
0.00
(0.00)
(0.00)
0.00
(0.00)
(0.00)
109.87
(0.00)
Note: QCBS = Quality- and Cost-Based Selection
QBS = Quality-based Selection
SFB = Selection under a Fixed Budget
LCS = Least-Cost Selection
CQ = Selection Based on Consultants' Qualifications
Other = Selection of individual consultants (per Section V of Consultants Guidelines),
Commercial Practices, etc.
N.B.F. = Not Bank-financed
Figures in parentheses are the amounts to be financed by the Bank Loan.
- 89 -
Prior review thresholds (Table B)
Table B: Thresholds for Procurement Methods and Prior Review'
Expenditure Category
1. Works
Contract Value
Threshold
(US$ thousands)
Procurement
Method
Contracts Subject to
Prior Review
(US$ millions)
Total value of contracts subject to prior review: US$114.65
Overall Procurement Risk Assessment: High
Frequency of procurement supervision missions proposed: One every 6 months
(includes special procurement supervision for
post-review/audits)
..
. ..
"Thresholds generally differ by country and project. Consult "Assessment o f Agency's Capacity to Implement
Procurement" and contact the Regional ProcurementAdviser for guidance.
- 90 -
Annex 6(B): Financial Management and Disbursement Arrangements
PAKISTAN: Pakistan Tax Administration Reforms Project
Financial ManaPement
1. Summary of the Financial Management Assessment
Country issues: The draft CFAA report points to weak budget execution but t h i s does not apply in t h i s
case. Experience with the existing portfolio indicates weak enforcement o f financial regulations and
inaccurate financial reporting. However, this has been taken care o f in this case with the key financial
management personnel appointed on deputation from AGP’s office who will remain associated with the
project during i t s life.
Risk
Risk Rating
Medium
Staffing
Internal control
Medium
R i s k Mitigating Measures
Induction o f Accounts Officer
(BPS 18/17)
Induction o f Intemal Auditor
(BPS 18)
The risk rating i s M e d i d L o w but may be brought down to L o w if the above actions are completed.
Strengths and weaknesses:
Strengths:
1. Professional finance manager and deputy
2. Prior experience o f deputy in handling Bank financed projects
Weaknesses :
1. Absence o f financial management support staff
2. Absence o f internal audit arrangements
Staffmg: ATRS i s handling financial management of three ongoing projects with fourteen more expected
to come up in the next few months. ATRS i s headed by Secretary (Expenditure) who i s on deputation from
the Auditor General o f Pakistan’s (AGP) office. The Secretary holds an MBA degree in Finance.
Similarly, the Second Secretary (ATRS) who heads the section i s on deputation [of three years] from
AGP’s office. H e i s an MBA with majors in Finance, I T & M I S and a Fellow Member o f the Pakistan
Institute o f Public Finance Accountants (PIPFA). The Second Secretary has prior experience o f handling
financial management of Bank financed projects.
There i s no support staff to assist the Second Secretary and some additional staff would be required to
handle the additional work load and for proper intemal controls (segregation o f duties). AGP’s office has
approved the appointment o f an internal auditor and accounts officer in addition to the two officers already
on deputation. These staff would remain with P M U during the life o f the project.
Budget preparation and execution: ATRS would submit the budget proposal (based on the Project
Implementation Plan) to the Finance Division/Planning Division. After clearance by the Priorities
Committee o f Planning Division, the N e w Items Statement (NIS) would be prepared by the CBR. N I S
would be submitted to the Finance Division under intimation to the Planning Division after which the
budget would be approved by the Ministry o f Finance.
-91 -
Appropriation registers would be maintained that would show the annual budget figures under each head o f
account. Expenditure (both GoP and Bank) would be entered and unutilized balance struck after each
transaction. A consolidated budget monitoring statement would be prepared by ATRS for Program
Director’s review. A copy o f the statement would be submitted to the Finance Division.
Fund Flow Arrangements: After approval o f the budget, the Finance Division would be requested to
release funds. The Finance Division would release funds under intimation to the Accountant General
Pakistan Revenues (AGPR). AGPR would issue a sanction to the Federal Treasury Office (FTO) which
would in turn authorize National Bank o f Pakistan to transfer funds to the Assignment Account.
Bank’s share o f expenditure would be incurred out o f a Special Account that would be opened for the
project. The Special Account would be operated jointly by the Program Director and another officer to be
nominated by the Chairman. Transaction based system o f reimbursement would be used for the project.
Accounting policies and procedures: Government’s Financial Rules (GFRs), delegation o f powers and
chart o f accounts would be used for the project. Counterpart funds are expected to flow thru the
Assignment Account that i s already being used for the three ongoing projects. The respective chiefs o f
various components would incur expenditure under their respective command and submit vouchers to
ATRS. Separate books o f account (for both Bank and counterpart funds) would be maintained for the
project. As per present practice, release and utilization o f counterpart funds i s reconciled with the Federal
Treasury Office and the AGPR respectively on a monthly basis. T h i s practice would be continued for the
project. Subsidiary record would be maintained for producing Financial Monitoring Reports (FMRs).
Payment process: Bills received would be checked by the Assistant Accounts Officer and Accounts
Officer before review by the Second Secretary and Secretary ATRS. All payments related to the project
would be approved by the Chairman after these have been seen by a committee comprising Member Policy
& Tax Reform, Member Administration, the concerned Member and the Financial Advisor. A bills
payable register would be maintained to record all invoices and payments in respect thereof. An advances
register would be maintained for recording mobilization advance to contractors.
Fixed assets accounting: Fixed assets would be centrally procured by ATRS and delivered to the relevant
sites. All sites would maintain subsidiary record in respect o f fixed assets that would be tallied with the
control account maintained at ATRS. Fixed assets would be physically verified at least once every year.
Financial reporting: Bank’s financial management and reporting requirements (including quarterly
Financial Monitoring Reports - FMRs) have been explained to the ATRS officials and it has been agreed
that the expenditure ledger would be so designed as to show the project expenditure by disbursement
category and by component.
Payroll processing: Payroll i s computerized at the Accountant General Pakistan Revenues (AGPR) CBR
advises the AGPR for any changes in staff remuneration e.g. absenteeism, transfers, etc.
Internal audit: Although there are three Internal Audit Departments in CBR for Income Tax, Customs
and Sales Tax, ATRS i s not subject to internal audit. Also, since the counterpart funds would be released
thru the Assignment Account, there would be no pre-audit by AGPR. Therefore, one o f the additional staff
to be obtained from AGP’s office would look after this aspect.
- 92
*
ExternalAudit: There were no material audit observations in respect o f audit o f the PPF or for the three
projects for FY’02 and FY’03.
Impact of procurement arrangements: Bank’s procurement guidelines would be followed for the project.
Procurement assessment i s under process after which the impact o f procurement arrangements on the
financial management system would be assessed.
Financial covenants: Standard financial covenants would be included in the legal documents.
Supervision plan: Normal supervision by Bank’s financial management staff i s recommended since the
project would have adequate financial management arrangements before negotiations.
Agreed Actions: The AGP’s office has approved appointment o f the two officers on deputation with CBR.
s1.
No.
1.
2.
Agreed Action
Responsibility
Accounts Officer to be in place (BPS 18/17)
Internal Auditor to be in place (BPS 18)
CBR
CBR
The Intemal Control Questionnaire i s in the file.
2. Audit Arrangements
Due Date
31 December
31 December
Audited Financial Statement
Project/SOE
Special Account
3. Disbursement Arrangements
The proposed Credit amount o f USD 102.9 million and Grant o f US$23 mil equvalent from DFID are
expected to be disbursed over a period of five years and would cover about 85% o f the project cost. The
withdrawals from the IDA Credit and DFID Grant would be under traditional transaction based
disbursement systems.
The allocation o f the Credit/ Grant proceeds by disbursement category and percentage to be financed are
show in the table below. 100% withdrawals, where applicable, would be net o f taxes and duties:
Allocation of loan proceeds (Table C)
Expenditure Category
(1) Works
(2) Vehicles
IDA Credit (US$ million)
18.00
2.40
- 93 -
IBRD Loan (US$ million)
--
DFID Grant(US$ m
--
-_
(4) Consultants’ Services
6.10
(5) Training
5.00
(6) Incremental Administrative
and Operating Costs
(7) Refund o f Preparation
Advance
(8) Unallocated
2.50
Total Financing
DFID Grant
IBRD Loan
Government Contribution
Total Project Costs
2.90
0.00
78.50
23.00
24.4
23.10
149.00
---I
I
5.00
--
__
--
24.4
23.00
--
_-
--
Use of statements of expenditures (SOEs):
Withdrawals (Documented and under Statement of Expenditures): Disbursement would be fully
documentedexcept for those expenditures under contracts not exceeding the equivalent of: (i)
US$200,000
for works and goods; (iii)US$lOO,OOO for services for consulting firms; (v) US$50,000 for services o f
individual consultants; (vi) training and (vii) incremental operating costs o f Program Management Unit.
Such disbursement would be made against Statement o f Expenditures (SOEs), the documentation for which
would not be submitted to IDA but retained by the CBR and made available during the course o f project
supervision.
Special account:
To facilitate disbursement, a Special Account would be established under the terms and conditions
acceptable to IDA. The Special Account would be opened and maintainedby CBR and would be used for
payments for all the eligible foreign and local expenditures. The Special Account would be replenished on
a monthly basis or whenever 20% o f the outstanding Special Account has been utilized, whichever occurs
first. The Special Account will have an authorized allocation o f USD 10 million for advance.
Retroactive Finance: Retroactive financing upto an amount o f USD 2,500,000.00 million would cover
- 94 -
8.00
__
--
eligible expenditures for Project activities after July 1,2004.
- 95 -
Annex 7: Project Processing Schedule
PAKISTAN: Pakistan Tax Administration Reforms Project
Project Schedule
Planned
Actual
Time taken to prepare the project (months)
First Bank mission (identification)
1 Appraisal mission departure
Negotiations
06/03/2004
I
0 1/04/2004
0911Of2004
Planned Date of Effectiveness
0 113 112005
Prepared by:
Government O f Pakistan - Central Board of Revenue
Preparation assistance:
Project Preparation Facility (PPF) No. Q309-PAK advance US$2.9 million
Bank staff who worked on the project included:
Michael Engelschalk
William Mayville
Arturo Jacobs
Zubair Khan
Erik Puskar
Haseeb Ahmed
Michel Zarnoweciki
Amer Durrani
Asya Akhlaque
Zia Aljalaly
Shabana Khawar
Rim Mehmood
Amir Munir
Asif Ali
Akhta.r Hamid
Mi Awais
Chau-Ching Shen
Hasan Saqib
Rubina Geizla Quamber
Kadija Jama
Tax Policy & Administration
Human Resource & Training
Tax Economist
Trade & Transport
Social Development
Operations & Finance
Hardware Systems
Financial Management
Team Assistant
Team Assistant
- 96 -
I
08/04/2003
06/04/2004
I
Annex 8: Documents in the Project File*
PAKISTAN: Pakistan Tax Administration Reforms Project
A. Project Implementation Pian
Borrower Project Implementation Plan
B. Bank Staff Assessments
Pre-appraisal Aide Memoire
Appraisal Mission Aide Memoire
Economic Impact Assessment
Financial Cost Benefit Assessment
Tax Policy Impact Analysis
C. Other
PIFRA-I
Financial Sector Deepening and Intermediation
Banking Sector Technical Assistance
Revenue Administration Reform Project - Bulgaria
Second Tax Administration Modernization Project - Russian Federation
Tax Administration Reform Project - Jamaica
Tax Administration Modernization Project - Hungary
Modernization o f Customs Administration Project - (ADB)
*Including electronic files
- 97 -
Annex 9: Statement of Loans and Credits
PAKISTAN: Pakistan Tax Administration Reforms Project
19-Jul-2004
Original Amount in US$ Millions
ProjectlD
FY
Purpose
IBRD
IDA
GEF
Cancel.
Difference between expected
and actual
disbursements'
- - - -. ..-.
Undisb.
Orig FrmRev'd
__
61.14
37.10
0.00
0.00
59.28
0.00
0.00
0.00
0.00
0.00
36.58
0.00
0.00
50.00
150.00
0.00
0.00
206.08
4.73
0.00
2004 Second Poverty Alleviation Fund Project
0.00
238.00
0.00
0.00
244.78
41.16
0.00
PO83370
2004 PK Public Sect Capacity Building Project
0.00
55.00
0.00
0.00
53.72
0.00
0.00
PO71454
2003 AJK Community infrastructure8 Services
0.00
20.00
0.00
0.00
20.13
5.48
0.00
Po74858
2003 HIV/AIDS Prevention Project
0.00
27.83
0.00
0.00
38.70
7.32
0.00
PO77288
2003 National Education Assessment System
0.00
3.63
0.00
0.00
3.80
0.18
0.00
Po74797
2003 Banking Sector Technical Assistance
0.00
26.50
0.00
0.00
25.12
15.37
0.00
PO81909
2003 Partnershipfor Polio Eradication
0.00
20.00
0.00
0.00
0.90
1.09
0.00
PO55292
2002 BSRPP
0.00
300.00
0.00
0.00
111.37
-204.62
0.00
PO71092
2001 NWFP ON-FARM WATER MANAGEMENT PROJECT
0.00
21.35
0.00
0.00
21.12
-3.08
-0.25
PO56213
2001 TRADE 8 TRANSPORT
0.00
3.00
0.00
0.00
0.80
0.49
0.00
PO35823
2001 GEF-Protected Areas ManagementProject
0.00
0.00
10.08
0.00
10.84
1.44
0.00
PO49791
1999 POVERTY ALLEVIATION FUND
0.00
90.00
0.00
0.00
3.76
1.67
0.00
PO10500
1998 Natl Drainage Pmg
0.00
285.00
0.00
0.24
70.27
76.03
38.67
PO38015
1997 IMPR FIN REP 8 AUDIT
0.00
28.80
0.00
0.00
14.30
14.49
14.83
921.56
-3825
53.04
PO78997
PO82621
2004 Sindh On-Farm Water Management Project
2004 NWFP Community Infrastructure11 ( CiP2)
PO10556
2004 HIGHWAYS REHAB
PO82977
0.00
Total:
50.00
- 98 -
1367.35
10.08
0.24
'
PAKISTAN
STATEMENT OF IFC's
Held and Disbursed Portfolio
Mar - 2004
In Millions US Dollars
Committed
Disbursed
IFC
FY Approval
1995
1996
1995
1991
1995104
1993
1993197101
2003
1991
2001
1990192196
2002
1995
1996
2003
1995
1994197100
2002
2002
1994
1994
1983102
1965187191194195
1994
2001
1996
Company
ABN AMRO PAK
A E S La1 Pir
AES Pak Gen
Abamco Mgmt
Askari Bank
BRRIM
BSJS Fund
CDCPL
Crescent Bahuman
Dewan Salman
Engro Chemical
Eni Pakistan
FIIB
Fauji Cement
First UDL
Gul Ahmed
KCT
Kohinoor
Maple Leaf
MetropolitanBnk
Micro Bank
Network Leasing
Orix Finance
PI&CL
PPL
Packages
Regent Knitwear
Sarah Textiles
Soneri Bank
Uch Power
Union Bank - PAK
Total Portfolio:
IFC
Loan
15.00
23.73
12.68
0.00
6.00
0.00
0.00
0.00
7.50
30.00
0.00
27.00
0.77
15.59
0.00
13.50
7.75
11.25
11.72
3.00
0.00
2.03
0.00
0.23
0.00
0.00
8.3 1
1.60
3 .OO
54.05
2.00
Equity
0.00
9.50
9.50
0.29
0.00
0.76
0.60
0.16
0.00
1.oo
3.90
0.00
0.00
0.00
0.00
4.10
0.00
6.30
0.00
0.00
2.71
0.00
0.58
0.00
6.63
0.26
0.00
0.00
0.00
0.00
0.00
Quasi
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4.00
0.00
0.00
0.00
0.00
6.67
0.00
1S O
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Partic
0.00
0.00
16.10
0.00
0.00
0.00
0.00
0.00
1S O
0.00
0.00
0.00
0.00
0.00
0.00
12.92
0.00
10.17
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.80
0.00
0.00
59.18
0.00
Loan
15.00
23.73
12.68
0.00
6.00
0.00
0.00
0.00
7.40
30.00
0.00
27.00
0.77
15.19
0.00
13.50
7.75
11.25
11.60
3.00
0.00
0.00
0.00
0.23
0.00
0.00
8.3 1
1.60
3.00
43.96
2.00
256.71
46.29
12.17
102.67
243.97
Approvals Pending Commitment
FY Approval
2004
Company
Dewan SME
Loan
2.00
Equity
0.00
Quasi
1.10
Partic
0.00
Total Pending Commitment:
2.00
0.00
1.10
0.00
- 99 -
Equity
0.00
9.50
9.50
0.29
0.00
0.76
0.60
0.16
0.00
0.00
3.90
0.00
0.00
0.00
0.00
4.10
0.00
6.30
0.00
0.00
2.71
0.00
0.58
0.00
6.63
0.26
0.00
0.00
0.00
0.00
0.00
45.29
Quasi
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
4.00
0.00
0.00
0.00
0.00
6.67
0.00
1.50
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
12.17
Partic
0.00
0.00
16.10
0.00
0.00
0.00
0.00
0.00
1S O
0.00
0.00
0.00
0.00
0.00
0.00
12.92
0.00
10.17
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.80
0.00
0.00
44.14
0.00
87.63
Annex 10: Country at a Glance
PAKISTAN: Pakistan Tax Administration Reforms Project
POVERTY and SOCtAL
2003
Population, mid-year lm//hons)
GNI per capita (Affaes methodr US$)
GNI (Affas method, US$ billionsl
Pakistan
South
Asia
Low.
income
148 4
430
84 0
1,425
510
726
2,3f0
450
1,038
24
32
18
23
1.9
2.3
28
63
68
48
84
42
95
103
30
88
82
44
75
39
92
99
85
Life expectancy
TI
Average annual growth, 199743
Populatlon i%t
Labor force (%)
GNI
per
capita
Most recent estimate (latest year available, 1997-03)
Poverty f% utpapulation bebw nabonal poverty h e )
Urban population (% oftotelpopu/ation)
Life expectancy at birth (yeam)
Infant mortality (per l,oOo/ive births)
Child malnutritmn (% of children under 5)
Access to an improved water source (% ofpopu/atran)
Illiteracy (% ofmulabon ege ISJ
Gross primary enrollment (% ofschod-age populatmJ
Male
Female
33
34
64
76
90
59
73
84
62
+--
Gross
primary
enrollment
1
58
Access to improved water source
_.^IC__
.
Pakistan
Low-inwme gmup
KEY ECONOMIC RATIOS and LONG-TERM TRENDS
1983
1993
2002
2003
GBP (US$ billionsj
Gross domestic investnienWGBP
Exp~rtsof goods and s e r v d G D P
Gross domestic savings/GI)P
Gmss national savingdGDP
28 7
18 8
1I.9
77
17.0
51 5
20 8
16 3
14 7
20 8
58.9
14.7
18,7
14.4
18.1
68.8
15 5
20.5
15,6
22.2
Current account balancelGDP
interest paymentdGDP
Total debffGDP
Total debt servicelexports
Present value of debtfGDP
Present value of debuexports
-0.6
11
41.9
20.9
6 5
15
47 7
23 9
2.7
13
57 1
21.o
44.9
195,2
6.1
1.1
52.7
16.7
1993-03
2002
2003
2003-07
3A
0.9
28
0.4
5.8
33
6.1
3.7
1983
1993
2002
2003
[avetage annual growthJ
GDP
GDP aer caoita
1983.93
5.8
31
STRUCTURE of the ECONOMY
(% of GDP)
Agriculture
Industry
Manufacturing
Services
Private consumption
General government consumption
imports of goods and sewices
(average annual growth)
Agriculture
Industry
Manufacturing
Services
Private consumption
General government consumption
Gross domestic investment
Imports of goods and services
. . . . . . . . . . ., . . . .
. . . . .
25.0
24.7
16.7
50.3
23.2
23.3
16.1
53.5
23.3
23.5
16.4
53.2
80.8
11.4
23.0
72.2
13.1
22.4
74.4
11.3
19.0
72.7
11.7
20.4
1983-93
1993-03
2002
2003
4.4
7.1
6.6
5.7
3.5
3.6
4.1
4.1
-0.1
5.4
5.0
4.1
4.1
5.4
7.7
5.3
4.3
6.6
4.9
3.2
3.5
1.3
0.7
0.0
1.4
13.5
-3.0
4.5
.~..,..
. . .
- 100 -
Trade
Indebtedness
30.3
22.1
15.3
47.7
,~...,.. ,....
I
I
I
Pakistan
*-*-
I
Lowinwme gmup
Growth of investment and GDP (5()
20
10
0
i
W
98
02
01
03
-lo
-20
b
GDI
"*_i
*GDP
Growth of exports and Imports (X)
4Q T
-0.6
10.4
10.5
13.9
. . ~ .. . . . . . . .
".
. . . . . . . . .
,- - - -
I
Pakistan
PRICES and GOVERNMENT FINANCE
1983
1993
2002
2003
5.3
9.8
8.7
2.7
3.1
3.1
4.6
18.1
-2.4
-8.1
19.5
0.2
-6.7
20.8
1.1
-4.5
1983
1993
2002
2003
2,694
6,782
271
317
3,723
10,049
1,290
1,578
3,409
9,140
18
448
5,368
9,432
413
2,664
2,594
10,889
49
555
6,653
11,333
587
3,097
3,392
88
96
92
80
90
89
89
101
88
1983
1993
2002
2003
3,420
6,593
-3,173
8,339
12,856
-4,517
11,056
11,646
-590
13,686
14,047
-361
-421
3,416
-1,498
2,688
-2,319
4,500
-2,210
6,775
-178
-3,326
1,591
4,204
2,682
644
1,685
-3,276
1,475
-5,679
2,758
12.7
1,360
25.9
4,997
61.6
10.243
58.6
1983
1993
2002
2003
12,026
351
1,145
24,546
2,624
2,683
33,672
2,749
5,394
36.132
2,695
5,869
1,343
63
14
2,383
343
45
2,850
367
111
3,028
373
130
Composition of net resource flows
Official grants
Official creditors
Private creditors
Foreign direct investment
Portfolio equity
277
350
-87
30
0
361
1,011
710
306
270
1,495
781
-515
368
-491
1,038
-133
-530
612
-394
World Bank program
Commitments
Disbursements
Principal repayments
Net f l o w
Interest payments
Net transfers
306
144
34
110
42
68
625
598
102
416
206
210
736
961
318
643
160
483
498
145
357
-212
147
-358
Domestlc prices
(% change)
Consumer prices
Implicit GDP deflator
Governmentfinance
(% of GDP, includes current grants)
Current revenue
Current budget balance
Overall surplusidefidt
TRADE
(US$ millions)
Total exports (fob)
Cotton
Rice
Manufactures
Total imports (cif~
Food
Fuel and energy
Capital goods
1,881
Export price index (1995=100)
Import price index (1995=100)
Terms of trade (199S100)
BALANCE of PAYMENTS
(US$ millions)
Exports of goods and services
Imports of goods and services
Resource balance
Net income
Net current transfers
Current account balance
Financing items (net)
Changes in net reserves
Memo:
Reserves including gold (US$ mi//ions)
Conversion rate (DEC, /oca//US$)
EXTERNAL DEBT and RESOURCE FLOWS
(US$ millions)
Total debt outstanding and disbursed
IBRD
IDA
Total debt service
IBRD
IDA
Development tconomics
I
Expolt and Import levels (US0 mlll.)
12,500 T
1o.m
7,500
5.m
2.500
I
0
07
M
W
L3Expork
W
02
01
Dimports
O3
I
Current account balance to GDP (76)
T
lo
10
1
1
Comporitlon of 2003 debt (US0 mlll.)
-
A IBRD
B - IDA
C IMF
-
D Other multilateral
E Bilateral
F Private
G Short-term
~
Yl1 IIW
- 101 -