Document of The World Bank Public Disclosure Authorized Report No: ICR00002147 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-72640 IDA-40070 TF-54392) ON A CREDIT Public Disclosure Authorized IN THE AMOUNT OF SDR 53.3 MILLION (US$78.5 MILLION EQUIVALENT) A LOAN IN THE AMOUNT OF US$ 24.4 MILLION AND A GRANT IN THE AMOUNT OF GBP 12.152 MILLION TO THE ISLAMIC REPUBLIC OF PAKISTAN FOR A Public Disclosure Authorized TAX ADMINISTRATION REFORM PROJECT June 25, 2012 Governance and Public Sector Management Unit South Asia Region Public Disclosure Authorized CURRENCY EQUIVALENTS Exchange Rate in original PAD Currency Unit = Pakistani Rupee (PKR) PKR 1.00 = US$ 0.016 US$ 1.00 = PKR 61.05 Exchange Rate Effective May 15, 2012 US$ 1.00 = PKR 90.87 FISCAL YEAR July 1 – June 30 ABBREVIATIONS AND ACRONYMS ADR Alternate Dispute Resolution APL Adaptable Program Loan ATL Active Taxpayers List BS Basic-pay Scale CAS Country Assistance Strategy CBR Central Board of Revenue CCFR Cabinet Committee for Finance and Revenue CEG Customs and Excises Tax Group CPS Country Partnership Strategy DCA Development Credit Agreement DFID Department for International Development (UK) DLI Disbursement Linked Indicator DPL Development Policy Loan EAP East Asia and Pacific Region ECA Europe and Central Asia Region EMP Environmental Management Plan ERR Economic Rate of Return ERS Expeditious Refund System FATE Facilitation and Taxpayer Education FBR Federal Board of Revenue FM Financial Management FMR Financial Monitoring Report FRR Financial Rate of Return GDP Gross Domestic Product GoP Government of Pakistan GST General Sales Tax HQs Headquarters (FBR) HRIS Human Resource Information System HRM Human Resources Management IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding ICR Implementation Completion and Results Report ICT Information Communication Technology IDA International Development Association IMF International Monetary Fund IMS Information Management Systems IRS Inland Revenue Service ISR Implementation Status and Results Report IT Information Technology ITG Income Tax Group ITMS Integrated Tax Management System KPI Key Performance Indicator LAC Latin America and Caribbean Region LTU Large Taxpayer Unit MoF Ministry of Finance MCC Model Customs Collectorate MDGs Millennium Development Goals M&E Monitoring and Evaluation MTR Mid-term Review MTU Medium Taxpayer Unit OECD Organization for Economic Cooperation and Development PAD Project Appraisal Document PCR Project Completion Report PDO Project Development Objective PEA Political Economy Analysis PIFRA Project to Improve Financial Reporting and Auditing PIP Project Implementation Plan PKR Pakistani Rupee PMU Project Management Unit PPF Project Preparation Facility PRAL Pakistan Revenue Automation Ltd PRSC Poverty Reduction Structural Credit PRSP Poverty Reduction Strategy Paper PSDP Public Sector Development Program QCBS Quality and Cost Based Selection RFP Request for Proposal RGST Reformed General Sales Tax RMU Risk Management Unit Rs Rupees RTO Regional Taxpayer Office SAC Structural Adjustment Credit SBD Standard Bidding Document SDR Special Drawing Right SOE Statement of Expenditures SOP Standard Operating Procedures SP&S Strategic Planning and Statistics Wing (FBR) STARR Sales Tax Automated Refunds Repository System TA Technical Assistance TAMS Taxpayers Audit Management System TARP Tax Administration Reform Project TFC Taxpayer Facilitation Center TTL Task Team Leader UNDB United Nations Development Business VAT Value Added Tax Vice President: Isabel M. Guerrero Country Director: Rachid Benmessaoud Sector Manager: Tony Verheijen Project Team Leader: Daniel Alvarez-Estrada ICR Team Co-leaders: M. Taqi Sharif and William V. Mayville COUNTRY Islamic Republic of Pakistan CONTENTS Datasheet A. Basic Information ............................................................................................................ i B. Key Dates ........................................................................................................................ i C. Ratings Summary ............................................................................................................ i D. Sector and Theme Codes ................................................................................................ ii E. Bank Staff ....................................................................................................................... ii F. Results Framework Analysis ......................................................................................... iii G. Ratings of Project Performance in ISRs ........................................................................ v H. Restructuring (if any) .................................................................................................... vi I. Disbursement Profile ..................................................................................................... vi 1. Project Context, Development Objectives and Design ................................................... 1 2. Key Factors Affecting Implementation and Outcomes .................................................. 4 3. Assessment of Outcomes .............................................................................................. 10 4. Assessment of Risk to Development Outcome ............................................................. 15 5. Assessment of Bank and Borrower Performance ......................................................... 16 6. Lessons Learned............................................................................................................ 19 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 21 Annex 1. Project Costs and Financing ........................................................................ 23 Annex 2(A). Project Outcome Indicators ........................................................................ 26 Annex 2(B). Intermediate Outcome Indicators ................................................................ 27 Annex 2(C). Assessment by Components ....................................................................... 29 Annex 2(D). Link between Original and Revised Components ...................................... 35 Annex 2(E). Activities Planned to be Financed by Components..................................... 37 Annex 3. Economic and Financial Analysis ............................................................... 40 Annex 4(A). Bank Lending and Implementation Support/Supervision Processes ........... 47 Annex 4(B). List of Key FBR Officials under TARP ...................................................... 50 Annex 4(C). List of Bank Task Team Leaders (TTLs) and co-TTLs ............................... 52 Annex 5. Beneficiary Survey Results (Summary) ....................................................... 53 Annex 6. Stakeholder Workshop Report and Results .................................................. 55 Annex 7. Summary of Borrower's PCR and/or Comments on Draft ICR ................... 56 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...................... 70 Annex 9. List of Supporting Documents ..................................................................... 72 Map ................................................................................................................................... 74 A. Basic Information Pakistan Tax Country: Pakistan Project Name: Administration Reforms Project IBRD-72640,IDA- Project ID: P077306 L/C/TF Number(s): 40070,TF-54392 ICR Date: 06/26/2012 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: PAKISTAN Original Total USD 102.90M Disbursed Amount: USD 48.41M Commitment: Revised Amount: USD 46.70M Environmental Category: B Implementing Agencies: Federal Board of Revenue Cofinanciers and Other External Partners: Department for International Development (DFID) B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/29/2003 Effectiveness: 04/07/2005 04/07/2005 09/01/2010 Appraisal: 05/19/2004 Restructuring(s): 12/15/2011 Approval: 12/07/2004 Mid-term Review: 09/15/2007 08/15/2007 Closing: 12/31/2009 12/31/2011 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: High Bank Performance: Moderately Unsatisfactory Borrower Performance: Unsatisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Unsatisfactory Government: Unsatisfactory Implementing Moderately Quality of Supervision: Moderately Satisfactory Agency/Agencies: Unsatisfactory Overall Bank Moderately Overall Borrower Unsatisfactory i Performance: Unsatisfactory Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes Satisfactory at any time (Yes/No): (QEA): Problem Project at any Quality of Yes Moderately Satisfactory time (Yes/No): Supervision (QSA): DO rating before Moderately Closing/Inactive status: Unsatisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 95 100 Sub-national government administration 5 Theme Code (as % of total Bank financing) Administrative and civil service reform 20 30 Tax policy and administration 40 60 Trade facilitation and market access 40 10 E. Bank Staff Positions At ICR At Approval Vice President: