FBR performance not up to the expectations: WB

RECORDER REPORT

ISLAMABAD: The World Bank review mission has categorically conveyed to the Federal Board of Revenue that the overall performance of the FBR continues to fall short of expectations, thereby risking the achievement of key development objectives of the Tax Administration Reform Project (TARP) by project closing date ie December 31, 2011.

Sources told Business Recorder here on Wednesday that the WB-funded TARP would conclude on December 31, 2011. In its report, the WB Implementation Review Mission observed that despite sustaining positive trends on some intermediate outcomes, overall performance continues to fall short of expectations, thereby risking the achievement of key development objectives by the end of project life. Based on preliminary data for fiscal-2010-2011, the FBR's tax revenue collection decreased to 8.6 percent of GDP from 9.0 percent for fiscal 2009-2010, the lowest level in recent years. Also, the fully functional FBR organisation envisioned by the end of the project faces critical challenges on account of the possible adverse impacts of the reorganisation introduced at the beginning of 2011, lack of coordination between FBR headquarters and field formations, and unstable tenure at FBR's mid-management levels, the WB said.

The WB further stated that while FBR's underperformance in fiscal 2010-2011 may have been affected by erosion of tax bases and reduced compliance levels due to lower than expected economic activity (e.g. on account of massive floods), improvements in implementation performance by the end of project life can still be attained by FBR through decisive actions in the following areas:

1. Implementation of short term actions agreed during last April's mission: A full-fledged implementation of the priority administrative measures agreed during April 2011, and reviewed during this interim assessment, is expected to accrue efficiency gains in FBR's key operational areas (audit, enforcement, and legal) associated with high potential impact on tax compliance in the short term. Shortcomings on the full implementation of pending actions may affect project's implementation performance ratings, the WB said.

2. Monitoring of organisational changes at FBR: Underperformance of FBR's revenue collection by the end of fiscal 2010-11 raises concerns about the adequacy of the new organisational structure in place at field formations since early 2011, as this appears to depart from the model of tax administration along functional lines supported by the government's reform program under TARP. A strong monitoring framework to assess operational performance is required to evaluate the overall adequacy of the reorganisation in the mid and long terms, as well as to timely suggest corrective actions, the WB stated.

3. Staff Training: The FBR management is supporting an intensive program for several groups of employees focusing on distinct areas and various modalities until end December 2011. For its successful implementation, it is critical to carefully plan the training activities so as to minimise disruptions in mainstream operations at field formations, and to assign maximum priority to the training to be conducted on different components of the Integrated Tax Management System (ITMS), given its potential impact on business process enhancement.

The WB further stated that a full assessment of the project's development objectives and implementation performance ratings is being undertaken by the upcoming supervision mission in November 2011, in light of FBR's revenue performance in the first quarter of 2011-12 against assigned targets and full implementation of the priority administrative measures discussed above.

The mission commended FBR's Project Management Unit's (PMU) substantial effort to process a critical mass of project's procurements since November 2010 and to encourage FBR management to ensure continuity of PMU staff as the project moves to its final implementation stages.

The WB has started preliminary discussions of a potential follow-on operation to TARP that could utilise a new World Bank instrument that defines concrete result indicators from the Government's own strategy and disburses against achievement of those results. While the successful conclusion of TARP would create a good foundation for any follow-on operation, the Bank is ready to work with the FBR to develop a sound and feasible results-oriented strategy for such an operation and awaits a formal request from the Economic Affairs Division for the follow-on results-based operation.

Economic Affairs Division has requested the FBR to submit its views/comments on key issues, agreed action and progress on the recommendations of World Bank Implementation Review Mission. In the aide memoire, World Bank has highlighted certain issues relating to Organisation and Management, human resource management (HRM) policies, staff training, enforcement, audit Information Technology, performance against Project Outcome Indicators and suggested recommendations. The EAD has requested the FBR to submit the comments on the aide memoire till November 4, 2011.

According to the WB, the aide memoire provides an interim assessment of key findings and recommendations relating to the implementation of FBR's reform program. The aide memoire also sets out key areas to be considered for a smooth conclusion of TARP's activities by December 31, 2011, the WB concluded.