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Six of 29 Poverty Reduction and Growth Facility criteria not met

ISLAMABAD (November 13 2002) : Out of total 29 structural performance criteria and benchmarks under the Poverty Reduction and Growth Facility Arrangement set for third review, six were not met including structural electricity tariff, Pakistan Railways, Pakistan Steel Mills and PIA's financial plans, contributory pension scheme for new recruits in the civil service, bringing UBL, PTCL and KESC at point of sale and no new exemption in income tax, customs duties, or GST.

Those which were not met were of the nature of including establishment of a contributory pension scheme for new recruits in the civil service and preparation of a third phase public pension reform package, prepared in collaboration with the WB, implement structural electricity tariff adjustment consistent with Wapda financial improvement plan; Preparation of financial plans and quarterly performance targets for FY 2002/03 for PIA; Pakistan Railways and Pakistan Steel Mills; Bring UBL and PTCL to the point of sale through transparent and open public offer for sale; To bring KESC to point of sale on July 31, 2002.

No new exemption or special privileges regarding income tax, customs duties, or GST are to be granted, no new regulatory import duties are to be imposed (except for anti-dumping measures) and all times bound exemptions and regulatory import duties to lapse without extension, except for existing contracts and exemptions based on international commitments.

The details of the Pakistan Structural Performance Criteria and benchmark under the PRGF Arrangement as set under the Second Review status as on October are as follows:

(1) No new exemption or special privileges regarding income tax, customs duties, or GST to be granted, no new regulatory import duties to be imposed (except for anti-dumping measures) and all times bound exemptions and regulatory import duties to lapse without extension, except for existing contracts and exemptions based on international commitments, and except for customs duty and income tax exemption for the shipping industry. This criterion is not yet met because all medicines were exempted from the general sales tax on August 23, 2002.

(2) Implement new organisational set-up for CBR headquarters per approved CBR reform plan as earlier agreed. Implemented on Feb 28 2002.

(3) Apply standard GST penalty regime to retailers and eliminate GST exemptions for all fertilisers wholesale and retail trade. Implemented on March 31 2002.

(4) Implementation of universal self-assessment effective for all income earned from July 01 2002. New IT Ordinance enforced on July 01 2002 and this condition became implemented.

(5) Start operations of a Large Taxpayer Unit, integrating all domestic tax operations. LT U in Karachi started on July 01 2002. Implementation on income tax reform package effective for income earned from July 01 2002 including: elimination of at least 55 income tax rebates, concessions and non-standard exemptions from the CRITO-list; and lowering the threshold on NSS scheme subject to withholding tax on interest income from Rs 300,000 to Rs 150,000. It has been implemented on July 01 2002.

(6) To bring KESC to point of sale on July 31 2002. It could not be met because expression were invited on March 2002 only two investors expressed interest and one investor provided statement of qualification, which was accepted in June 2002. However, investor has not yet started due diligence. Complementary reforms delayed due to legal complexities.

(7) Issue circular banks to purchase from August 01 2002 foreign exchange from money changers at freely negotiated rates. It was done and foreign exchange manual was issued in January 2002 allows banks to purchase foreign exchange from money changers at freely negotiated rates.

(8) Issue budget call for fiscal year 2003-04 budget on the basis of the New Accounting Model (NAM) for federal government and any one province, for parallel run with existing system. It has to be met on October 31, which was done.

(9) Publish quarterly progress reports on implementation of financial improvement plan of Wapda/successors. Its time is November 30 2002 for the quarter July-Sep 2002; February 28 2003 for the quarter October-December 2002.

Structural Benchmark

(10) Prepare list of intermediate indicators with baseline data for 2000-01 and preliminary annual targets for the period FY 2001/02-2003/04. Its time was December 2001 and was done.

(11) Quarterly published progress reports on implementation of Poverty Reduction Strategy, including “I-PRSP expenditure,” as well as on progress in (a) establishing institutional framework for I-PRSP monitoring, (b) preparation of full PRSP; and (c) developing baseline data and monitoring framework for intermediate indicators. It was to start end-December 2001 for 2001/02 first quarter data and continued on the basis of the same quarterly schedule throughout 2001/03. Its fourth report was published in Sep 2002.

(12) Publish rules and regulations including for record-keeping under the universal assessment scheme for income tax to become effective July 01 2002. It was done and draft rules were published end-March 2002 to obtain public feedback. Final rules become effective July 01 2002.

(13) Prepare proposal for revised income and sales tax appeals and dispute resolutions process with a view to implement them with the fiscal year 2002-03 target. It was done and rules become effective July 01 2002.

(14) Bring UBL and PTCL to the point of sale through transparent and open public offer for sale. It was planned on May 2002 but was delayed, UBL was the privatised in Sep 2002.

(15) Issuance of a streamlined foreign exchange manual to simplify and clarify rules regarding access to foreign exchange and current account transactions. It was done and manual issued in Jan 2002.

(16) Establishment of a contributory pension scheme for new recruits in the civil service and preparation of a third phase public pension reform package, prepared in collaboration with the WB and involving actuarially fair reform of early retirement and of commutation table. Actuarial cell to be established in Finance Ministry by end-2002 since this benchmark is delayed.

(17) Implement structural electricity tariff adjustment consistent with Wapda financial improvement plan. It was delayed and the structural tariff increase 9.2% on average became effective on August 31 2002.

(18) Preparation of financial plans and quarterly performance targets for FY 2002/03 for PIA, Pakistan Railways and Pakistan Steel Mills. It was partially delayed. Financial plan prepared by end-August 2002 and quarterly performance targets prepared on Sep 27 2002.

(19) Eliminate administrative restrictions on the setting of interest rates on foreign currency deposits. It was done and circular was issued in July.

(20) Implement revised sales tax and customs refund rules and procedures to reduce the incidence claims and payments. It was done.

Prepare custom administration reform plan. Plan was prepares by August 20 2002.

(21) Make model income tax office for small and medium taxpayers in Lahore fully operational. Preparation is on track.

(22) Amend SBP Act to strengthen central bank autonomy, in particular in the area of reserve management, per safeguard Assessment recommendations. Amendment approved by cabinet on Sep 25 2002 promulgation pending.

(23) No new exemption or special privilege regarding income tax, custom duties or GST to be granted, no new regulatory import duty to be imposed (except for anti-dumping measures) and all time bound exemptions and regulatory import duties to lapse without extension, except for existing contracts and exemptions based on international commitment. It has been met so far.

(24) Publish quarterly progress report on implementation of financial improvement plan of Wapda/successors. It has to continue for May 2003.

Prior Actions for completion of Third Review

(25) Prepare financial improvement plan and quarterly performance targets for FY 2002/03 for KSEC based on approved multi-year tariff framework. Plan was prepare according to the quarterly targets on Sep 30 2002.

26) Effectiveness of multi-year electricity tariff framework for KESC to reduce regulatory uncertainty, providing for automatic adjustment to inflation and to fuel cost charges and including immediate structural increase. Implemented and effective Sep 13 2002 with average structural tariff increase of 6.5%.

Implement revenue measures to offset the exemption of medicines form GST in August 2002 and lowering of petroleum taxation in Sep and early Oct 2002 to restore overall revenue form 2002/03 to program levels.

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