The government will make all-out efforts to address three to four outstanding issues, including tax harmonisation, for securing loans worth over $800 million from the World Bank in the next one month.
Finance Minister Shaukat Tarin says that Pakistan has already received $400m for reforms in tax administration out of a total of $1.2 billion loans of the World Bank and that “we need this money and will take all prior actions.”
According to a World Bank’s document, harmonisation involves an agreement among the federal government and the provinces to apply the same definitions, principles and rates for general sales tax (GST) on goods and services.
Mr Tarin agreed that there are challenges and the federal government would intervene to resolve these issues between the Federal Board of Revenue (FBR) and provincial revenue authorities. He said this issue would be resolved in the next one month. “I have a firm resolve to fix this issue,” he added.
Special Assistant to the Prime Minister on Finance and Revenue Dr Waqar Masood Khan said that two sub-committees were already working to suggest measures for broadening the tax base, one of the major initiatives under the World Bank reform project.
Recent estimates by the World Bank indicate that Pakistan is collecting only half of the economy’s tax potential, leaving almost two thirds of GST liabilities and more than half of income tax uncollected. For example, most retail traders do not pay taxes.
Finance Minister Shaukat Tarin said the World Bank demands that Pakistan should notify the power sector reforms. He said the government would soon take up the issue of integrated power generation plan in next meeting of the Council of Common Interests. “We will get the plan approved in the CCI meeting,” he said.
This (approval of integrated power plan) is one of the prior actions for getting approximately $400m energy sector loan. Similarly, the government is also finalising the Circular Debt Management Plan in advance to ensure smooth sailing.
Mr Tarin said there were two other demands of the World Bank, which he did not disclose.
According to the World Bank report, Pakistan’s tax system is very complex and even people and the companies which would like to pay their taxes find that it costs them significant time and money to comply.