The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) REPORT NO.: RES31490 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF STRENGTHENING TAX SYSTEMS AND BUILDING TAX POLICY ANALYSIS CAPACITY APPROVED ON APRIL 28, 2017 TO THE ISLAMIC REPUBLIC OF PAKISTAN GOVERNANCE SOUTH ASIA Regional Vice President: Annette Dixon Country Director: Patchamuthu Illangovan Senior Global Practice Director: Deborah L. Wetzel Practice Manager/Manager: Ismaila Ceesay Task Team Leader: Charles Victor Blanco, Muhammad Waheed The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) ABBREVIATIONS AND ACRONYMS CD Country Director DFID Department for International Development (United Kingdom) EA Environmental Assessment EAD Economic Affairs Division FBR Federal Board of Revenue FY Fiscal Year ICT Information and Communications Technology MMI Market Monitoring and Intervention Unit MS Moderately Satisfactory PDO Project Development Objective PSDP Public Sector Development Program TAGR Trust Fund for Accelerating Growth and Reform TF Trust Fund TIU Tax Intelligence Unit TOR Terms of Reference USD United States Dollar The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) BASIC DATA Product Information Project ID Financing Instrument P161463 Investment Project Financing Original EA Category Current EA Category Not Required (C) Not Required (C) Approval Date Current Closing Date 28-Apr-2017 30-Apr-2018 Organizations Borrower Responsible Agency The Islamic Republic of Pakistan Federal Board of Revenue Project Development Objective (PDO) Original PDO The PDO is to support policy informed decisions in domestic revenue mobilization. Key Results include 1) Produce annual comprehensive tax expenditure analysis 2) Forecast annual tax revenues of FBR and provincial governments OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net TF Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-A4946 28-Jul-2017 02-Aug-2017 02-Aug-2017 30-Apr-2018 4.90 0 4.90 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. Aimed at strengthening tax systems and building tax policy analysis capacity, the Project (USD 4.9 million) was approved by the Bank on April 28, 2017 and became effective on August 2, 2017. The objective of the Project is to support policy informed decisions in domestic revenue mobilization. The Project, which is part of the Department for International Development (DFID) - funded Trust Fund for Accelerating Growth and Reform (TAGR), consists of two components: (1) Updating Tax Administration Data Centers to Strengthen the Federal Board of Revenue’s (FBR) Capacity in Information Technology, and (2) Building FBR’s Fiscal Research and Tax Policy Analysis Capacity. Under Component 1, the Project will update the Data Centers, including Storage, Servers and Network Equipment, and support the implementation of a change management program. The expected outcome is an integrated Information and Communications Technology (ICT) data center that effectively conveys tax information to decision makers. Under Component 2, the Project will support the set-up of a Tax Intelligence Unit (TIU) and a Market Monitoring and Intervention Unit (MMI), whose aim is to develop the Federal Board of Revenue’s (FBR) capacity to carry out sound tax policy analysis. The units will be responsible for designing, organizing, and directing a wide range of macroeconomic and tax analyses (e.g., direct, indirect, customs, trade). 2. Project activities experienced initial delays but are now underway. The reasons for the delay were (i) a request by FBR for additional consultations prior to the start of the Project, (ii) personnel changes within the Government of Pakistan due to the departure of the Secretary of the Economic Affairs Division (EAD), the authorized representative for signing the Grant Agreement, and (iii) the fact that the Project was initially not included in the Public Sector Development Program (PSDP) 2017-18 at the time of budget approval in June 2017, which effectively put a stop on implementation.1 All these issues are now resolved. The budget for the Project was allocated in January 2018, allowing the opening of the Revolving Fund Account and enabling the Project to commence disbursement. Project implementation has also started. Under component 1, the procurement process for the data center has been launched and is tentatively expected to be completed by December 2018. Under component 2, the terms of reference (TOR) for staff/consultants of the tax policy unit have been approved. Overall, the Project is currently being rated as moderately satisfactory (MS) and has no outstanding audits. II. DESCRIPTION OF PROPOSED CHANGES 3. The proposed restructuring consists primarily of an extension of the Project closing date and related revisions to the results framework. The proposed restructuring responds to a request by the Economic Affairs Department (EAD) of the Government of Pakistan to restructure the Project through an extension of the Project closing date by 14 months from April 30, 2018 to June 30, 2019 (Letter No. 4(3)WB-IV/17 of February 12, 2018). Consistent with this request, the restructuring proposes an extension of the closing date until June 30, 2019 and related revisions of the dates and targets of the results framework, the disbursement estimates, procurement plan and implementation schedule. There are no other substantial changes to the Project. In particular, the Project Development Objective (PDO), the implementation arrangements, the Project cost and the Project’s risks and safeguards remain unchanged. The proposed changes of the restructuring are summarized below.  Extension of Project Closing Date: To allow for a successful completion of Project activities following the initial delays, it is proposed to extend the Project closing date by 14 months from April 30, 2018 to June 30, 2019.  Change in Results Framework: Consistent with the Project’s new closing date, the target dates of the results framework are being revised. 1 The Project’s PC-1, the Government’s internal project concept document, was prepared and approved in January 2017. The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463)  Change in Disbursement Estimates: The Project’s disbursement estimates have been updated reflecting the new closing date. It is estimated that the Project will disburse its entire funds in FY2019. USD 3.43 million (70%) of the Project amount is expected to be disbursed by December 31, 2018, while the remaining USD 1.47 million (30%) is expected to be disbursed by June 30, 2019.  Change in Procurement: The Project’s Procurement Plan has been updated in line with the new Project implementation schedule. There are no fundamental changes in substance to the procurement.  Change in Implementation Schedule: The sequence of activities remains the same, but the implementation schedule of the Project has been updated reflecting the new closing date of June 30, 2019. Activities under component 1 (Data Center) are now expected to be implemented from February 2018 to December 2018. Activities under component 2 (establishment of two research units) are scheduled to be implemented between March 2018 and June 2019. The proposed changes are outlined in further detail in sections III. and IV. of the Restructuring Paper below. III. SUMMARY OF CHANGES Changed Not Changed Change in Results Framework ✔ Change in Loan Closing Date(s) ✔ Change in Disbursement Estimates ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Change in Implementing Agency ✔ Change in Project's Development Objectives ✔ Change in Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_RESULTS_TABLE RESULTS FRAMEWORK Project Development Objective Indicators PDO_IND_TABLE Produce annual comprehensive tax expenditure analysis Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 01-Mar-2017 10-Aug-2017 30-Jun-2019 Forecast annual tax revenues of FBR and provincial governments Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 01-Mar-2017 10-Aug-2017 30-Jun-2019 Intermediate Indicators IO_IND_TABLE Data Center is equipped with Blade Servers, Primary SAN and relevant networks Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 01-Mar-2018 10-Aug-2017 31-Mar-2019 Data Center servers and software are virtualized using the cloud Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Date 01-Mar-2017 10-Aug-2017 31-Mar-2019 Tax Intelligence Unit and the Market Monitoring and Intervention Unit offices are fully equipped Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 01-Mar-2017 10-Aug-2017 30-Jun-2019 Tax Intelligence Unit and the Market Monitoring and Intervention Unit are staffed with 9 positions supported by the project Unit of Measure: Number Indicator Type: Custom Baseline Actual (Current) End Target Action Value 0.00 0.00 9.00 Revised Date 01-Mar-2017 10-Aug-2017 30-Jun-2019 Monthly executive and detailed reports on the performance of revenue collections Unit of Measure: Yes/No Indicator Type: Custom Baseline Actual (Current) End Target Action Value No No Yes Revised Date 01-Mar-2017 10-Aug-2017 30-Jun-2019 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline TF Status Closing Closing(s) Closing for Withdrawal Applications TF-A4946 Effective 30-Apr-2018 30-Jun-2019 30-Oct-2019 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Year Current Proposed 2017 0.00 0.00 2018 0.00 0.00 2019 0.00 4,900,000.00 2020 0.00 0.00 2021 0.00 0.00 2022 0.00 0.00 2023 0.00 0.00