World Bank proposes USD 200 million to broaden Khyber Pakhtunkhwa tax base

The World Bank has proposed USD 200 million in financing to help Khyber Pakhtunkhwa broaden its tax base and improve public service delivery, according to the bank's programme document. The proposal targets an increase in the province's own-source tax revenue from Rs64 billion to Rs122 billion in real terms by June 2031. Approval of the operation is scheduled for 29 October 2026.

The USD 200 million forms part of a proposed Pakistan Public Resources for Inclusive Development Multiphase Programmatic Approach for Khyber Pakhtunkhwa with a total cost of USD 650 million. According to the document, the World Bank contribution comprises a USD 100 million International Development Association credit and a USD 100 million IDA loan, with the provincial government providing the remaining USD 450 million. The programme is expected to run from fiscal year 2027 to fiscal year 2032.

The bank's assessment sets out the fiscal pressures behind the proposal. It says 35.3 percent of the province's population lived below the national poverty line in fiscal year 2025, around 40 percent of children under five were stunted, 36 percent of school-age children were out of school and only 58 percent were fully immunised. Khyber Pakhtunkhwa remains heavily dependent on federal transfers, the document notes, while own-source revenue finances only a small and declining share of rapidly rising expenditure, with higher salaries and pensions, the absorption of the merged districts, inflation and an expanded development programme crowding out public investment. The proposal follows an earlier World Bank decision to grant exceptional approval for a time extension and restructuring of a provincial revenue mobilisation programme.

The programme is built on three components: expanding provincial revenue collection, improving the allocation and efficiency of health and education spending, and strengthening the provincial statistical system. Under revenue mobilisation, the bank seeks a broader tax base, simplified and harmonised tax administration and digital transformation across the KP Revenue Authority, the Excise Taxation and Narcotics Control Department and the Board of Revenue. It identifies gaps in tax coverage, fragmented administration and inadequate digital capacity as obstacles, noting that property, agriculture and substantial parts of the services sector remain outside effective taxation while the three agencies operate with overlapping mandates and limited data sharing.

On spending, the bank envisages needs-based budgeting, more predictable budget execution, greater spending authority at facility level and digital procurement and financial management. It cautioned that existing public financial management reforms have yet to translate into efficient health and education spending, citing weak links between allocations and facility needs, unpredictable releases and poorly integrated procurement and payment systems. By June 2031, the programme aims for 60 percent of primary schools currently failing minimum functional standards to reach compliance, verification of 60 percent of contractual payments through the electronic procurement and disposal system, and a 15 percent reduction in procurement cycle times in health and primary education. A third component would establish a KP Development Data Hub. The bank assesses the operation as carrying moderate environmental and social risks, including potential digital exclusion of rural and low-income populations, data privacy concerns, electronic waste and possible distributional effects of agricultural income tax reforms.