The World Bank Kazakhstan - Tax Administration Reform Project (P116696) REPORT NO.: RES29270 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF KAZAKHSTAN - TAX ADMINISTRATION REFORM PROJECT APPROVED ON FEBRUARY 16, 2010 TO REPUBLIC OF KAZAKHSTAN GOVERNANCE EUROPE AND CENTRAL ASIA Regional Vice President: Cyril E Muller Country Director: Lilia Burunciuc Senior Global Practice Director: Deborah L. Wetzel Practice Manager/Manager: Adrian Fozzard Task Team Leader: Waleed Malik The World Bank Kazakhstan - Tax Administration Reform Project (P116696) ABBREVIATIONS AND ACRONYMS GDP Gross Domestic Product FS Feasibility Study HQ Headquarters IBRD International Bank for Reconstruction and Development ICB International Competitive Bidding IFR Intermediate Financial Report INT Institutional Integrity ISR Implementation Status Report IT Information Technology KZT Kazakhstani Tenge MOF Ministry of Finance PDO Project Development Objective PMU Project Management Unit SRC State Revenue Committee TARP Tax Administration Reform Project TC Tax Committee USD United States Dollar VAT Value Added Tax VP Vice-President The World Bank Kazakhstan - Tax Administration Reform Project (P116696) Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. BASIC DATA Product Information Project ID Financing Instrument P116696 Specific Investment Loan Original EA Category Current EA Category Approval Date Current Closing Date 16-Feb-2010 31-Dec-2018 Organizations Borrower Responsible Agency REPUBLIC OF KAZAKHSTAN State Revenue Committee Project Development Objective (PDO) Original PDO The development objective of the proposed project is to reform and strengthen the tax administration in order to improve the level of voluntary compliance, enhance effectiveness to fight tax evasion, increase administrative efficiency, and reduce the potential for corruption. The project would have a positive impact on the business climate by improving client services, strengthening institutional and human capacity in the tax administration, and reducing the burden of taxpayer compliance. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed IBRD-78350 16-Feb-2010 12-Jul-2010 17-Feb-2011 31-Dec-2018 17.00 5.10 11.90 The World Bank Kazakhstan - Tax Administration Reform Project (P116696) Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No Note to Task Teams: End of system generated content, document is editable from here. The World Bank Kazakhstan - Tax Administration Reform Project (P116696) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The development objective of the project are to reform and strengthen tax administration in the Republic of Kazakhstan in order to improve the level of voluntary taxpayer compliance with tax regulations, enhance effectiveness to fight tax evasion, and increase administrative efficiency and reduce the potential for corruption. Project activities are structured under three components: institutional development; development of core tax administration operations; and development of an integrated tax management information system. The original Closing Date was December 31, 2014. This has been extended by a cumulative period of four years till December 31, 2018. 2. Most of the activities envisaged in the institutional development and operational development components have been completed, including extensive business process reengineering and legislative changes to introduce universal filing system and improve tax administration. However, as a consequence of the merger of tax and customs administrations, the State Revenue Committee was unable to finalize the design and launch procurement for the information technology component until recently. Completion of the IT modernization component is now required to translate the improved business processes into implementation solutions and allow achievement of the PDO. 3. Project implementation has picked up after several IT contracts were signed in December 2016 (CERTEX Licensed Software, Risk Management System (RMS), E-invoices system) and the project disbursed US$1.2 million in advance payments. Bidding for the two high value procurements of ICT software (ICB-01 “Integrated Tax Management System” and ICB-03 “Integrated Database”) was closed in July as planned. These procurements are valued at the equivalent of US$12 million, of which US$3.8 million to be financed from the loan. These final procurements will upgrade and replace the existing ICT systems in use in the SRC resulting in them having a more robust, functional and maintainable ICT system that assists in day-to-day operations for tax compliance and enforcement activities. 4. The Ministry of Finance has requested partial cancellation of USD3.5 million by its letter dated July 20, 2017. The original project cost was US$56.7 million of which US$17 million (or 30%) was provided by the IBRD and US$39.7 million (or 70%) is from the Republican Budget of the Republic of Kazakhstan. Savings in the amount of US$3.5 million resulted from a significant exchange rate depreciation in 2015. The Project has disbursed US$5.1 million to date. The remaining US$8.4 million will finance ICT and Project Management related activities as per the latest Procurement Plan approved by the Bank. 5. Financial Management Status. The project has no significant financial management issues. The project audit report for 2016 with an unqualified (clean) opinion has been received. It has been reviewed by the Bank’s FMS and deemed satisfactory. The World Bank Kazakhstan - Tax Administration Reform Project (P116696) II. DESCRIPTION OF PROPOSED CHANGES 6. Partial Cancellation of the Project Funds. It is proposed to cancel US$3,500,000 from the total IBRD loan amount. The reduced loan amount of US$13,500,000 will be sufficient to finance all of the activities under the project. The reduction in loan amount is not because of cancellation of any project component, subcomponent or activity, the reduction solely due reductions in overall project costs resulting from exchange rate depreciation. 7. There is no change in the Indicators. No revisions are proposed to the Project Development Objective (PDO) as a result of this restructuring. This cancellation does not affect any of the project activities, subcomponents and components. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. I. SUMMARY OF CHANGES Changed Not Changed Change in Components and Cost ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Change in Disbursement Estimates ✔ Change in Implementing Agency ✔ Change in DDO Status ✔ Change in Project's Development Objectives ✔ Change in Results Framework ✔ Change in Loan Closing Date(s) ✔ Change in Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Change in Safeguard Policies Triggered ✔ Change of EA category ✔ The World Bank Kazakhstan - Tax Administration Reform Project (P116696) Change in Legal Covenants ✔ Change in Institutional Arrangements ✔ Change in Financial Management ✔ Change in Procurement ✔ Change in Implementation Schedule ✔ Other Change(s) ✔ Change in Economic and Financial Analysis ✔ Change in Technical Analysis ✔ Change in Social Analysis ✔ Change in Environmental Analysis ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) Institutional Development 4.85 Revised Institutional Development 4.85 Operational Development 14.78 Revised Operational Development 11.28 IT Infrastructure Development 27.60 Revised IT Infrastructure Development 27.60 Project Management 4.20 Revised Project Management 4.20 TOTAL 51.43 47.93 OPS_DETAILEDCHANGES_CANCELLATIONS_TABLE CANCELLATIONS Value Reason Current Cancellation New Ln/Cr/Tf Status Currency Date of for Amount Amount Amount Cancellation Cancellation BORROWER' Disburs IBRD- S REQUEST ing&Re USD 17,000,000.00 3,500,000.00 25-Jul-2017 13,500,000.00 78350-001 FOR paying COUNTRY The World Bank Kazakhstan - Tax Administration Reform Project (P116696) REASONS OPS_DETAILEDCHANGES_REALLOCATION _TABLE REALLOCATION BETWEEN DISBURSEMENT CATEGORIES Financing % Current Allocation Actuals + Committed Proposed Allocation (Type Total) Current Proposed IBRD-78350-001 | Currency: USD iLap Category Sequence No: 1 Current Expenditure Category: Goods, CS, OP, TR 17,000,000.00 5,092,485.99 13,500,000.00 100.00 100.00 Total 17,000,000.00 5,092,485.99 13,500,000.00 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2010 0.00 0.00 2011 100,000.00 100,000.00 2012 700,000.00 700,000.00 2013 860,000.00 860,000.00 2014 150,000.00 150,000.00 2015 1,850,000.00 1,850,000.00 2016 0.00 0.00 2017 5,500,000.00 1,500,000.00 2018 4,300,000.00 4,300,000.00 2019 3,540,000.00 4,040,000.00 Note to Task Teams: End of system generated content, document is editable from here. The World Bank Kazakhstan - Tax Administration Reform Project (P116696)