Pakistan on Wednesday met another World Bank (WB) condition in order to qualify for a $450 million loan to bridge a $6 billion financing gap, as so far only one country has verbally communicated its decision to the International Monetary Fund (IMF) to give additional loans.
The condition was met days before Finance Minister Ishaq Dar’s meeting with the outgoing World Bank president in Washington in which he is expected to request the lender to set a board meeting date for the approval of the loan.
Despite making a request, however, until Wednesday Pakistan was unable to secure a meeting between Dar and the IMF Managing Director, Kristalina Georgieva.
The National Tax Council (NTC), on Wednesday, approved rules to determine the place where a service will be deemed to be provided by a province for the purpose of collecting sales tax. The World Bank has asked for the harmonisation of sales tax on goods and services as a condition to the loan.
The NTC approved the draft Place of Provision of Service Rules, a major milestone towards General Sales Tax (GST) harmonisation across the country, according to the finance ministry. The approval will help achieve the prior actions for the World Bank funded RISE programme, it added.
After approval from their respective cabinets, the provinces will notify the Place of Provision of Services Rules by May 1, according to the decision. The NTC is the administrative coordination body on taxation matters between the centre and the four federating units.
Sindh was of the opinion that the rules be applied from the next fiscal year but the centre requested implementation from April to qualify for the WB loan.
Pakistani authorities said that the approval and implementation of the rules was the only condition remaining for the approval of the second Resilient Institutions for Sustainable Economy (RISE-II) loan worth $450 million. Sources said that, after its approval, Dar will now request the WB’s top management to convene a board meeting and approve the loan.
The WB’s outgoing President David Malpass’ term is going to end this month. President Joe Biden has nominated Ajay Banga as new president of the WB. His term will begin from the month of May subject to approval from the board on May 1st. Sources told The Express Tribune that the United States has sought Pakistan’s support in Banga’s candidacy.
Dar may also request the WB to de-couple the RISE-II loan from the second Programme for Affordable Energy (PACE-II) worth $600 million. The WB believes that Pakistan cannot achieve macroeconomic stability until its power sector is fixed. The conditions for the RISE-II loan pertain to the country’s fiscal and macroeconomic framework, involving the provinces too. The PACE-II loan aims to reduce circular debt flow by reducing power generation costs.
The $450 million WB loan proceeds are critical for Pakistan, currently struggling to arrange $6 billion in additional loans, including $3 billion immediately to convince the IMF to announce a staff level agreement.
For the current fiscal year, the government had hoped to receive from $30 billion to $32 billion in foreign financing but those plans now appear unrealistic. The financing plan included loans worth $2.9 billion from the WB. So far, only Saudi Arabia has verbally confirmed to the IMF that it will extend a $2 billion loan to Pakistan out of the required funds of $6 billion. The confirmation from the United Arab Emirates (UAE) is still pending. The government has recently resolved a long outstanding issue and allowed the UAE airlines to operate A-380 flights – their biggest airplane – to major Pakistani airports. Earlier, the aviation ministry was resisting the demand.
Sources said that Pakistan was also trying to secure a meeting between Dar and Georgieva, as no bilateral meeting could take place in October last year on the side-lines of the WB-IMF annual meetings.
design: Ibrahim Yahya
The spring meetings of the WB-IMF will take place from April 10 to 16. Last time, Pakistan’s finance minister had met with the IMF’s deputy managing director. This time, too, it has gotten a confirmation for a meeting with the same.
In January, the World Bank spokesperson had told The Express Tribune that the indicative date for the board to discuss the RISE-II project was fiscal year 2024 – starting on July 1, 2023 and ending on June 30, 2024. The Pakistani authorities, however, believe that they can convince the lender to approve the loan before June due to the ongoing economic crisis.
The NTC on Wednesday also decided that services relating to electric power transmission will be a provincial subject and the Federal Board of Revenue (FBR) will take necessary action to exclude electricity from the list of goods so that the transmission of electricity can be treated as a service as decided by the NTC. The amendment will be made in the Sales Tax Act of 1990 to give effect to the decision from July.
In the last meeting of the NTC executive committee, the FBR chairman showed concern about electricity being treated as a good under the Sale Tax Act, therefore, before framing rules for services relating to electric power transmission by provinces, an amendment in the Sales Tax Act is required.
Published in The Express Tribune, April 6th, 2023.
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