Tax, pension reforms: ADB to provide $0.95m in technical aid

ISLAMABAD: The Asian Development Bank (ADB) will provide technical assistance of around $0.95 million to Pakistan to support complex tax administration and pension system reforms that provide the basis for the proposed improved domestic resource mobilisation reform programme, it is learnt.

Sources revealed that the government of Pakistan requested TA to support complex tax administration and pension system reforms that provide the basis for the proposed Improved Domestic Resource Mobilization Reform Program. An extensive consultation mission reached an agreement with the government on the scope and coverage, results framework, implementation arrangements, and cost estimates of the TA.

The urgent need for TA support and the ensuing program stems from the extremely challenging macroeconomic and fiscal situation that the country frequently finds itself in and efforts by succeeding governments, with support from development partners such as the International Monetary Fund, the World Bank, the United Kingdom’s Foreign and Commonwealth Development Office, and ADB, to substantively address the longstanding structural factors behind this perennial cycle.

The TA grant of $950,000 will support the, (i) design and implementation of detailed policy actions under the ensuing program; (ii) development of capacity in the executing and implementing agencies; and (iii) policy dialogue with the government to improve awareness and understanding of international standards, best practices, and lessons learned in the tax administration and pension system reform areas.

The proposed Improved Domestic Resource Mobilization Reform Program aims to help the Government of Pakistan implement reforms that will help ensure fiscal sustainability and generate fiscal space to finance critical investments in human capital, infrastructure, and poverty alleviation. The proposed program will support policy, legal, and institutional actions in three key reform areas that will help improve, (i) domestic revenue mobilization, (ii) the quality of public expenditure and cash management for increased allocative efficiency of scarce public resources, and (iii) the mobilization and utilization of domestic savings and foreign direct investment. These key reform areas are closely aligned with the government’s reform agenda for public sector management outlined in Pakistan’s Vision 2025, the national development strategy; the medium-term budget strategy; and the ADB country partnership strategy for Pakistan, 2021–2025.

A proposed transaction technical assistance (TA) will help the government prepare the ensuing project. The TA also aligns with the Central Asia Regional Economic Cooperation (CAREC) Program, particularly the CAREC Integrated Trade Agenda 2030 and the CAREC Digital Strategy 2030 that promotes trade through applying digital technologies.

The proposed transaction TA will focus on the first and third key reform areas. It will, through the Ministry of Finance and the Federal Board of Revenue (FBR), support the implementation of critical tax administration, pension system, and institutional, and capacity development reforms in Pakistan. The development and implementation of the second key reform area for improving the quality of public expenditure and cash management will be provided through ADB’s ongoing regional TA facility for Supporting Public Financial Management and Tax Policy.

The TA coverage of all key reform areas ensures not only adequate support for the implementation of complex reforms but also a strong demonstration of ADB value-addition.

The knowledge and support TA, ongoing as of July 2022, will support reforms to strengthen the capacity for tax policy analysis and design, including a tax gap analysis and tax code review. The Asia Pacific Tax Hub will support tax administration reforms through trainings and other capacity development events. Moreover, the team is exploring additional grant financing from the Domestic Resource Mobilization Trust Fund to support the government in enhancing the collection of indirect taxes on cross-border trade in digital services.

The TA financing amount is $950,000, which will be financed on a grant basis by ADB’s Technical Assistance Special Fund (TASF 7). The government will provide counterpart support in the form of counterpart staff, office space, office supplies, secretarial assistance, domestic transportation, and other in-kind contributions. The government was informed that approval of the TA does not commit ADB to finance any ensuing project.

Copyright Business Recorder, 2022