The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) REPORT NO.: RES36370 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: Hartwig Schafer Country Director: Patchamuthu Illangovan Senior Global Practice Director: Deborah L. Wetzel Practice Manager/Manager: Ismaila B. 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 ID Identity (Project ID) NO. Number MU Moderately Unsatisfactory 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 US$ United States Dollar The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) 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 P161463 Investment Project Financing Original EA Category Current EA Category Approval Date Current Closing Date 28-Apr-2017 30-Jun-2019 Organizations Borrower Responsible Agency The Islamic Republic of Pakistan Federal Board of Revenue Financing (in USD Million) FIN_SUMM_PUB_TBL SUMMARY Total Project Cost 4.90 Total Financing 0.00 Financing Gap 0.00 DETAILS -NewFin3 Project Development Objective (PDO) Original PDO The PDO is to support policy informed decisions in domestic revenue mobilization. The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) 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-Jun-2019 4.90 .28 4.62 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. I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING 1. The US$4.9 million Strengthening Tax Systems and Building Tax Policy Analysis Capacity Project (P161463) was approved by the Bank on April 28, 2017 and became effective on August 2, 2017. Financed by a grant of the Department for International Development (DFID) under the Trust Fund for Accelerating Growth and Reform (TAGR), the project aims “to support policy informed decisions in domestic revenue mobilization.” It consists of two components:  Component 1 - Updating Tax Administration Data Centers to Strengthen the Federal Board of Revenue’s (FBR) Capacity in Information Technology: Component 1 supports updating FBR’s data centers, including storage, servers and network equipment and implementing change management. The expected outcome is an integrated Information and Communications Technology (ICT) data center that effectively conveys tax information to decision makers.  Component 2: Building FBR’s Fiscal Research and Tax Policy Analysis Capacity. Component 2 supports setting up a Tax Intelligence Unit (TIU) and a Market Monitoring and Intervention Unit (MMI), whose aim is to develop FBR’s 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., on direct and indirect taxes, customs and trade). 2. Project implementation experienced delays, particularly in procurement, which affected overall project performance. The early phase of project implementation was affected by staff turnover within the Government of Pakistan and a time lag before the project could be included in the Government’s Public Sector Development Program (PSDP), which delayed the signing of the grant agreement and initial implementation. The project also experienced significant challenges and delays in procurement compared to the initial schedule. The bidding process for the data center, which represents 80 percent of project costs, was canceled twice. The first round of bidding was canceled after some bidders raised complaints and requested additional clarifications. The second round of bidding was affected by changes in the exchange rate between the United States dollar and the Pakistani rupee, which impacted cost estimates. In addition, in the view of FBR, none of the submitted proposals met all necessary technical requirements. In agreement with the Bank, the Government decided to attempt a third and final round of bidding, which is currently underway. Due to the delays in procurement, the project could not make any tangible progress towards achieving its development objective and, in August 2018, was downgraded to “Moderately The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Unsatisfactory” (MU). In March 2018, the project closing date was extended by fourteen months through a Level 2 restructuring to allow for additional time for the completion of the procurement processes. There are no outstanding audit reports under this project. 3. Despite its limited performance to date, the project still has an opportunity to achieve its development objective, if additional time is provided to allow for the ongoing procurement processes to be completed. Progress of the overall project depends critically on the successful completion of the procurement process for the data center under Component 1 and the finalization of recruitments and analyses under Component 2. There has recently been visible progress in both areas.  Under Component 1, FBR worked intensively to launch a third round of procurement for the data center which is currently under way and in the bid evaluation phase with satisfactory responses to the technical part and the financial evaluation scheduled for April 10, 2019.  Under Component 2, FBR has successfully recruited 14 consultants for the Tax Intelligence Unit and Market Monitoring and Intervention Unit, several of which have already started working (among other, Director of MMI, Director of TIU, Economist MMI, Economist TIU, Track & Trace Specialist, translator). The recruitments for two additional positions, a Change Management Specialist and a Legal Expert, are in the final stages. As a result of the progress in substance, on March 20, 2019, the project could make a first disbursement of US$280,000 for the payment of salaries and equipment. It is envisioned that a short second extension of the project closing date by two additional months to August 31, 2019 would give the project an opportunity for a successful completion of ongoing activities. Concrete actions and timelines have been agreed with the client to finalize the procurement processes and prepare the analyses required for the achievement of the PDO. Overall, the potential development benefits outweigh the risks, and a two-month extension of the project appears justified. II. DESCRIPTION OF PROPOSED CHANGES 4. The proposed restructuring responds to a request by the Economic Affairs Division (EAD) of the Government of Pakistan to restructure the Project through an extension of the project closing date by two months from June 30, 2019 to August 31, 2019 (Letter No. 4(3)WB-IV/17 of March 29, 2019). Consistent with this request, the restructuring proposes an extension of the project closing date until August 31, 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 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 and outlined in further detail of the data sheet of the Restructuring Paper.  Extension of Project Closing Date: To allow for a completion of project activities, particularly the procurement for the data center, it is proposed to extend the project closing date by two months from June 30, 2019 to August 31, 2019.  Change in Results Framework: Consistent with the project’s extended closing date, the target dates of the results framework are being revised. There are no changes in substance to the results indicators or targets.  Change in Disbursement Estimates: The project’s disbursement estimates have been updated reflecting the new procurement timeline and closing date. It is estimated that the project will disburse at least US$280,000 of its funds in FY2019 and the remaining US$4,620,000 in FY2020.  Change in Procurement: The project’s Procurement Plan has been updated in line with the new schedule for the procurement process. There are no fundamental changes to the substance of the Procurement Plan and no changes to procurement arrangements. Note to Task Teams: The following sections are system generated and can only be edited online in the Portal. The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) I. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Procurement ✔ Implementation Schedule ✔ Implementing Agency ✔ Project's Development Objectives ✔ Components and Cost ✔ Cancellations Proposed ✔ Additional Financing Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Change in Overall Risk Rating ✔ Safeguard Policies Triggered ✔ EA category ✔ Legal Covenants ✔ Institutional Arrangements ✔ Financial Management ✔ 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 The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Value No No Yes Revised Date 01-Mar-2017 12-Jul-2018 31-Aug-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 12-Jul-2018 31-Aug-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 12-Jul-2018 31-Aug-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 Date 01-Mar-2017 12-Jul-2018 31-Aug-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 12-Jul-2018 31-Aug-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 The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Baseline Actual (Current) End Target Action Value 0.00 0.00 9.00 Revised Date 01-Mar-2017 12-Jul-2018 31-Aug-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 12-Jul-2018 31-Aug-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 31-Aug-2019 31-Oct-2019 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2017 0.00 0.00 2018 0.00 0.00 2019 0.00 280,000.00 2020 0.00 4,620,000.00 2021 0.00 0.00 2022 0.00 0.00 2023 0.00 0.00 The World Bank Strengthening Tax Systems and Building Tax Policy Analysis Capacity (P161463) Note to Task Teams: End of system generated content, document is editable from here.