WB to provide Rs10b loan to improve KP revenue generation

PESHAWAR: The falling own source revenue generation through tax collection has become a major concern for the Khyber Pakhtunkhwa and the Finance Department has planned to seek $100 million loan from the World Bank to enable the tax collecting machinery to cope with the anomaly.

The provincial tax collection machineries, including Excise and Taxation, Khyber Pakhtunkhwa Revenue Authority (KPRA) and Land Revenue Department, have never achieved the revenue targets since the devolution of Sales Tax on services component to the province in the wake of the 18th Amendment in 2010.

The main brunt of the own source revenue shortfall or deficient collection the province is experiencing has been recorded in the Sales Tax on services in which it is far behind Punjab and Sindh.

The Pakistan Tehreek-e-Insaf (PTI)-led has estimated Rs45.22 billion as provincial own receipts in the current financial year (2017-18) and set the target of Rs18.84 billion for the first five months (July 1to December).

However, it could collect only Rs10.48 billion during the period facing a shortfall of Rs8.36 billion.The province has been collecting Sales Tax (ST) on services mainly from eight sectors with the Telecommunications as main contributor. The Telecom sector contributes 66 percent of the ST on services in the province. While four main sectors agriculture, mining and quarrying, manufacturing and electricity, gas and water are paying zero percent ST on services. However, the provincial government has succeeded in collecting ST on few other services.

The ST on services slab has, though increased steadily since 2013, yet it is still well behind the target set by the province against its potential.The aforesaid eight sectors contributed Rs5.9 billion in 2013-14, Rs7.2 billion in 2-15-16 and Rs10.2 billion in the last fiscal year (2016-17).

Going by its current standards, according to the World Bank analysis of the assumed annual growth, Khyber Pakhtunkhwa could collect just Rs12.9 billion ST in the current or next financial year. It will raise its ST on services collection to Rs49.75 billion in the fiscal year of 2029-30. However, the Bank experts assumed the potential of the province at around Rs174 billion for the period.

To unlock this potential, the Financial Department and International Development Association (IDA), a wing of the World Bank that helps the poorest countries, are going to initiate an ambitious “own source generation” project.

The IDA will provide $ 100 million (Rs10.5 billion) in loan for the implementation of the project. The loan repayment period apart from the grace period of six years is 38 years, while its interest rate falls at 0.75 percent.

The World Bank has already arranged a workshop for the provincial quarters concerned last month and the provincial government is going to sign agreement to the effect shortly.

Secretary Finance Shakeel Qadir sounded upbeat about the project and told this scribe on Monday that they had been informed by World Bank that it intended to provide a loan of Rs10 billion on very easy installments for the project to improve the performance of the revenue infrastructures—KPRA and Excise and Taxation.

He said the provincial economic managers would utilise the money the way they want and the bank would not interfere. However, the Bank would give four broad Disbursement Link Indicators (DLIs) in the regard.

“Like they say, if could increase our own source revenue from the current Rs28 billion to Rs 34 billion next year, it will provide us $ 5 million,” Shakeel Qadir further said. “And we will get another $5 million cache if we jack it up to Rs40 billion during the year after next year,” he said of the project modalities.

“So it is conditional with the revenue generation; and in the process they will help us to build the capacity of the infrastructures of the revenue generation— the KPRA and Excise. Actually it is an investment into the KPRA and Excise and Taxation,” Shakeel Qadir maintained.

The other DLI relates to proportional improvement in land revenue against which the Bank would make payment, he informed.

The Finance Department would lead this project and it would enable the provincial machinery to improve own source revenue generation over the next few years, he said.