Pakistan approves $200 million loan for FBR reforms

ISLAMABAD: The government has approved another foreign-funded project to modernise the Federal Board of Revenue (FBR). The new project is worth $200 million, equivalent to around Rs57.1 billion. The Central Development Working Party (CDWP) has recommended the Transforming and Digitalising Revenue Administration (TADRA) project for further approval. The proposal has been forwarded to the Executive Committee of the National Economic Council (ECNEC).

The project is expected to be financed through an Asian Development Bank (ADB) loan. The latest financing will add to Pakistan’s foreign borrowing for tax reforms. Officials said around $4.7 billion had already been obtained from development partners for modernising the tax system. With the proposed loan, total foreign borrowing for tax reforms will reach nearly $4.9 billion.

The five-year TADRA project will focus on improving the FBR’s digital infrastructure and revenue administration system. Around $81 million has been allocated for consultancy services. The FBR will hire consultants for the implementation of different components. Another $10 million has been set aside for project management.

The proposed loan will be repaid over 25 years. The interest rate is expected to range between 1.5% and 2% per year. The financing comes as the FBR faces continued pressure to improve tax collection and expand the country’s narrow tax base.

Pakistan has introduced several tax reform programmes in recent years. Despite these efforts, the FBR has struggled to achieve its revenue targets. The country’s tax-to-GDP ratio also remains low. It stood at around 10.3% during fiscal year 2025-26.

During the review of the TADRA project, officials raised questions about the impact of earlier foreign-funded programmes. The Planning Commission asked the FBR to assess the results of previous initiatives. These included the Tax Administration and Reforms Project, Pakistan Single Window, Integrated Transit Trade Management Systems and the Pakistan Raises Revenue Programme.

The Planning Commission also expressed concerns about the proposed targets under the new project. Officials said the goals for increasing tax collection and the number of taxpayers needed to be more specific and measurable. Deputy Chairman Planning Commission Ahsan Iqbal stressed the need for clear targets related to revenue generation, the tax-to-GDP ratio and expansion of the taxpayer base.

The FBR assured officials that the new investment would help raise the tax-to-GDP ratio from 10.3% to 13.5% by 2029. It also aims to increase active registered taxpayers from around seven million to 12 million. The authority expects digitalisation to improve tax compliance and make revenue collection more efficient.

The project will support the implementation of the FBR Transformation Plan 2024-28. The plan focuses on upgrading the tax authority’s hardware and software systems. It also aims to improve operational efficiency, strengthen taxpayer compliance and increase domestic resource mobilisation.

However, technical experts raised several concerns about the proposed digital transformation. They pointed to the absence of a detailed gap analysis and a comprehensive data security framework. They also sought greater clarity about the artificial intelligence models proposed for the new system.

Experts suggested that the FBR should examine existing technologies before investing in expensive customised AI solutions. They also highlighted the availability of open-source options. Officials called for a detailed feasibility study to identify weaknesses in the existing system and determine the technology required for the new project.

The FBR said infrastructure developed under earlier programmes mainly provided basic information and communication technology capabilities. It argued that the requirements have now changed because the new system will involve advanced computing and machine-learning applications.

The FBR’s broader transformation programme includes major upgrades to its digital infrastructure. The Federal Cabinet has approved the Transformation Plan at an estimated cost of Rs350 billion. The programme includes improvements to both hardware and software systems.

According to official details, the FBR’s server capacity is being expanded from around 850 terabytes to three petabytes. The upgraded infrastructure is expected to support the growing volume of tax data and improve the authority’s ability to use advanced digital tools.