$200m more approved for FBR

The government has approved another $200 million foreign loan to reform the Federal Board of Revenue (FBR), bringing total loans for tax system modernisation to almost $5 billion. The Central Development Working Party (CDWP) has recommended the Transforming and Digitalising Revenue Administration (TADRA) project worth Rs57.1 billion or $200 million for approval, the Ministry of Planning said on Friday. It added that the project has been sent to the Executive Committee of the National Economic Council (ECNEC) for further consideration. The project is proposed to be financed through foreign funding under an Asian Development Bank (ADB) loan, the ministry said. Of the total cost, $81 million or Rs22.5 billion has been earmarked for consultancy services, which the FBR would procure for project implementation over five years. Another $10 million has been approved for project management cost. Successive governments have taken loans in the name of reforming the FBR, but the tax machinery has failed to meet expectations. It has missed the last two fiscal years' tax targets and the tax-to-GDP ratio remained stagnant at 10.3% in fiscal year 2025-26. Official records showed that during a meeting held to scrutinise the project, the Planning Commission observed that approximately $4.7 billion had been obtained from development partners to reform Pakistan's tax system. With the fresh lending, foreign loans for tax system reforms would reach $4.9 billion. The Planning Commission had asked the FBR to conduct an impact assessment of previous reform interventions under foreign-funded projects: the Tax Administration and Reforms Project (TARP), Pakistan Single Window (PSW), Integrated Transit Trade Management Systems (ITTMS), Pakistan Raises Revenue Programme (PRRP) and now TADRA. The loan will be repaid over 25 years, with taxpayers paying an interest rate of 1.5%–2.0% per annum. Responding to the Planning Commission's observations, the FBR stated that the PRRP component established only foundational ICT capabilities. It said the TADRA justification explains why PRRP-era infrastructure was inadequate, noting that PRRP data centres were "designed for conventional transaction processing rather than GPU-intensive machine learning operations", demonstrating an evidence-based need assessment. The Planning Commission also observed that the project's targets for enhancing tax collection and the number of filers were "generic in nature". While reviewing the project, Deputy Chairman Planning Commission Ahsan Iqbal stressed the need for clearly defined and measurable outcomes, particularly in revenue generation, tax-to-GDP improvement and expansion of the taxpayer base, the Ministry of Planning said. The ministry said the FBR assured the CDWP that the investment would increase the tax-to-GDP ratio to 13.5% by 2029 and bring more taxpayers into the tax net. The DCPC recommended the project to ECNEC on condition that PIDE thoroughly review its business model. However, similar assurances were given to raise the tax-to-GDP ratio to 18% and then to over 13% under the $400 million World Bank-funded Pakistan Raises Revenue programme. Neither the World Bank headquarters questioned its staff nor did the government hold the FBR accountable for missing these targets. The FBR has now promised to increase active registered taxpayers from seven million to 12 million and tax-to-GDP from 10.3% to 13.5%. The planning ministry said the main objective of the FBR's project was to strengthen domestic resource mobilisation by accelerating digital transformation of the revenue administration ecosystem to operationalise the FBR Transformation Plan (2024-28), focusing on enhancing operational efficiency, improving taxpayer compliance and elevating Pakistan's global competitiveness. An assistant economic advisor in the Finance Division proposed a detailed feasibility study to assess existing gaps and ascertain specific requirements. The meeting was informed that loan negotiations would be held soon. During scrutiny, an assistant professor from the Cyber Security Department at the National University of Computer and Emerging Sciences observed that the project lacks gap analysis, a comprehensive data security framework and clarity on the basis of the artificial intelligence model proposed for system design, while highlighting the availability of open-source options for a customised AI model and adequate data governance mechanisms. An assistant professor from the School of Electrical Engineering and Computer Science at the National University of Sciences and Technology also raised observations to incorporate analysis of existing systems and details on AI models proposed for the new systems, official documents showed. The FBR said its Transformation Plan (2024-2028) had been approved by the Federal Cabinet at a total cost of Rs350 billion. The interventions proposed under different programmes and projects are part of the FBR transformation programme, which includes upgrading both hardware and software. FBR servers are being upgraded from 850TB to 3PB, according to these details.