World Bank Proposes $200 Million for KP Tax Reforms

The World Bank has proposed $200 million in funding to support Khyber Pakhtunkhwa (KP) in broadening its tax base and strengthening public service delivery, with the province aiming to raise its own-source tax revenue from Rs64 billion to Rs122 billion in real terms by June 2031.

A World Bank document states that the proposed Pakistan Public Resources for Inclusive Development Multiphase Programmatic Approach for KP carries a total cost of $650 million. Of this amount, $450 million would be contributed by the provincial government, while the remaining $200 million would come from the World Bank.

The proposed assistance includes a $100 million credit and a separate $100 million loan from the International Development Association (IDA). The programme is scheduled to cover FY2027 through FY2032, with the World Bank expected to consider approval on October 29, 2026.

The initiative will concentrate on three key priorities: boosting provincial tax revenues, improving expenditure on healthcare and education, and upgrading the province’s statistical infrastructure.

According to the World Bank, KP continues to rely substantially on federal transfers, as revenue generated independently by the province finances only a limited—and declining—portion of its overall expenditure.

Growing salary and pension bills, inflation, and additional expenditure demands arising from the merged districts have further reduced the resources available for public investment.

As part of the planned reforms, the provincial government intends to expand the tax base, make tax administration more efficient and introduce digital systems within the KP Revenue Authority, the Excise Taxation and Narcotics Control Department, and the Board of Revenue.

The World Bank highlighted weak taxation of property, agriculture and certain services, together with fragmented administrative arrangements and inadequate data sharing, as major barriers preventing stronger revenue growth.

In the healthcare and education sectors, the programme will seek to improve budget distribution, procurement processes and financial management to enhance the quality of public services.

By June 2031, the initiative aims to bring 60% of primary schools that currently fail to meet minimum functional standards into compliance. It also seeks to ensure electronic verification and payment for 60% of contractual payments and cut procurement cycle times in health and primary education by 15%.

The proposed initiative comes as KP faces substantial social and development challenges. The World Bank reported that 35.3% of the province’s population lived below the national poverty line in FY2025, while approximately 40% of children younger than five suffered from stunting.

The report further indicated that 36% of school-age children were not attending school, while just 58% of children had received full immunisation.

Another component of the programme will be the creation of a KP Development Data Hub, designed to improve economic data, bring administrative records together and facilitate planning based on reliable evidence.

The World Bank classified the programme’s environmental and social risks as moderate, pointing to possible digital exclusion, concerns surrounding data privacy and potential distributional consequences of reforms to agricultural income taxation.