Key Takeaways
- Pakistan approved a $200m loan from the ADB for digital tax reforms.
- The project aims to increase the tax-to-GDP ratio to 13.5% by 2029.
- The Planning Commission raised concerns over the project's business model.
Pakistan has given the green light to a $200 million loan from the Asian Development Bank (ADB) for a digital tax reform project, despite reservations from the Planning Commission.
The project, known as the Transforming and Digitalising Revenue Administration (TADRA), is part of a broader initiative to increase the tax-to-GDP ratio to 13.5% by 2029, from the current 11.1%.
The approval was made at a meeting of the Central Development Working Party (CDWP), chaired by Planning Minister Ahsan Iqbal. The project is one of seven cleared for a total of Rs116 billion.
The Planning Commission, however, has raised serious questions regarding the project's business model, urging the Pakistan Institute of Development Economics (PIDE) to conduct a thorough review.
Minister Iqbal recommended the project to the Executive Committee of the National Economic Council (ECNEC) with the condition that PIDE should assess the impact of previous reforms and determine the value for money.
The ADB loan is part of its Investment Project Financing (IPF) under its Ordinary Capital Resources (OCR) concessional window, with a standard term of 25 years, including a five-year grace period, and an annual interest rate of 1.5% to 2%.
The FBR has assured that the loan will contribute to the increase in the tax-to-GDP ratio and the expansion of the taxpayer base, but the Planning Commission has demanded concept clearance on the project's alignment with the FBR's Transformation Plan.
The FBR's Transformation Plan for 2024-28 includes accelerating the digitalisation of the revenue administration, enhancing operational efficiency, and improving taxpayer compliance.
The project is expected to bring more taxpayers into the tax net and improve the overall tax administration system, addressing the persistent issue of low tax-to-GDP ratio in Pakistan.
