Tranche 2 Achievements:  Government to (i) enhance provincial tax revenues by 12% nominal in FY2004; and (ii) assist local governments to strengthen property tax collection systems at local level, in line with agreed action plan to increase buoyancy and yield.

Agreed actions to take:

v   Review progress in tax collection and agree on strategy and measures for further provincial tax reform.

v   AIT: Full implementation of AIT in income mode. Further refine tax assessment method.

v   AGRICULTURAL AND LAND TAX:  Mutation fee exemptions on transfers of land lowered to 12.5 acres

v   GST Further expand scope of GST on services to cover remaining services as identified and agreed with other provincial governments.   Reach agreement with federal and provincial governments on other services to be included.

v   PROPERTY TAX: Initiate and implement action plan and timetable for further restructuring of property tax aiming to: (a) remove remaining exemptions – for retired government servants and properties owned by public sector organizations (PSOs); (b) index-link property values to avoid stagnation of revenues in nominal terms; (c) gradually narrow difference in tax liabilities of rented and owner-occupied properties – (as has already been done in Islamabad Capital Territory); (d) make structure more equitable by increasing differentials based on location; (e) capture element of “pugree” (goodwill) in case of commercial properties; and (f) move to a tax based on market values of properties.   Develop action plan for property tax levy and collection at TMA level and provide assistance to local governments.

v   PROFESSIONAL TAX: Further revise present structure of professional tax to broaden base and make it buoyant. Expand scope (to include lawyers, jewelers, cable operators, printing presses, and pesticide dealers). Review efficacy of professional tax with the extension of base of GST on services, and consider integration into GST.

v   STAMP DUTY: Rationalize structure of stamp duties (currently more than 100) and make it more buoyant using ad-valorme basis.

v      MOTOR VEHICLE TAX: Finalize structure and mode of implementation of fuel levy with Federal Government.

Indicative achievement targets under subprograms 2 and 3:

Annual increase of tax revenues by at least 9%. Further review and adjust tax structure and rates. Harmonization of taxes structure with other provinces.                             

Tranche 2 Achievements: Relevant departments to (i) further review and rationalize fees and charges; (ii) increase revenue from irrigation charges and WASAs on a continuing basis to reduce operational deficits; (iii) undertake technical studies for the purpose of rationalizing charges and increasing revenue from tertiary services on health and education (with targeted mechanisms to support poor and vulnerable groups).

Agreed actions to take:

v   Assess collection performance and review efficiency of other low yielding fees and charges.

v   Rationalize/abolish low yielding fees and charges, such as cotton cess, sugar cess, paddy husking fee and similar fees.

v   Review outcomes of irrigation charge rationalization and prepare implementation of action plan to increase revenues to cover operation and maintenance (O&M) costs.

v  Finalize and start implementation of action plan for WASAs/TMAs.

v   Finalize study (including action plan for implementation) on improved cost recovery from tertiary services on health and education (including social impact assessment and targeted social protection mechanisms).

Indicative achievement targets under subprograms 2 and 3:

Increase nontax revenues by at least 9%.  Further move towards cost-recovery for irrigation, water supply and sanitation. Further increase collection efficiency.

Tranche 2 Achievements: Government to approve and initiate action plan for restructuring of administrative arrangements for revenue collection.

Agreed actions to take:

v   Complete study/review on reform/rationalization of tax collection system, including organizational set-up, staffing and incentives, computerization and recording systems.

v   Prepare action plan for reform of revenue collection system.

v   Approval of action plan by Government by legally competent authority, and move towards implementation.

Indicative achievement targets under subprograms 2 and 3:

Implement administrative reforms of revenue collection system, based on recommendations developed under subprogram 1. Increase collection efficiency (in particular for AIT). Build capacity for assessment and collection of property tax at local level.

Tranche 2 Achievements: Restructure provincial debt portfolio and reduce average cost of borrowing.

Agreed actions to take:

v   Finalize and begin implementation of debt management strategy.

Indicative achievement targets under subprograms 2 and 3:

Further reduce debt service ratio of the province.

Tranche 2 Achievements: FD to identify provincial contingent liabilities and develop a strategy for their management.  (i) Initiate reform of financing of civil service pension obligations; (ii) initiate restructuring of existing guaranteed loans and commit to limit guaranteed loans in the future; and (iii) initiate restructuring of Punjab Small Industries Corporation (iv) Initiate restructuring, privatization or liquidation of PSOs (including Tourism Development Corporation of Punjab, Punjab Provincial Cooperative Bank).

Actions and Activities:

v   Carry out partial actuarial assessment of civil service pension liabilities.

v   Undertake independent audit of [agreed] PSOs for assessment of financial position, to establish base data for further reform.

v    Develop strategy for reform of agreed PSOs.

v   Develop strategy for financing pension obligations.

v   Identify and initiate restructuring/write-off nonperforming loans of agreed PSOs guaranteed by provincial government (including WASAs), combined with measures that limit future guarantees by Government.

v   Agree on PSOs for privatization and liquidation, with administrative control for those PSOs to be transferred to Punjab Privatization Board. 

v   Appoint consultants and financial advisors for privatization/restructuring, and liquidators for PSOs to be closed down. Invite expressions of interest for privatization/divestiture of at least one [agreed] PSO.

v   Prepare and initiate implementation of Action Plan for recapitalization of GPF.  Set-up a separate fund account to capitalize GPF surplus.

Indicative achievement targets under subprograms 2 and 3:

Implement strategies developed under subprogram 1: (i) fully fund pension liabilities; (ii) restructure and write-off all guaranteed non-performing loans of PSOs; and (iii) close down loss-making PSOs that cannot be restructured/privatized.

Tranche 2 Achievements: FD to systematically identify provincial subsidies in transparent manner. Gradually phase out direct and indirect subsidies that do not explicitly target the poor and/or for which effective mechanisms are unable to deliver pro-poor benefits.

Actions and Activities:

v   Calculate explicit and hidden subsidies, including on interest and service provision by PSOs (such as Punjab Small Industries Corporation (PSIC), Punjab Cooperative Bank, etc), and agree on timetable for phasing out of such subsidies, including indirect subsidies.

v   Initiate implementation of timetable for phasing out of subsidies (including on interest cost of loans disbursed through province-owned institutions).

v   Subsidies for farmers for use of tubewells to be removed (if any, subsidies should be targeted to improve improving water use efficiency).

Indicative achievement targets under subprograms 2 and 3:

Further reduce non-poor subsidies in line with Medium Term Budget Framework, and make other subsidies explicit and transparent.

Tranche 2 Achievements: Government to (i) improve linkage between the project approval and budget allocation processes; (ii) achieve quarterly publication of expenditures; and  (iii) protect provisions for high priority social expenditures consistent with the poverty focused investment strategy (see Outcome 12 “Create a medium-term, poverty-focused investment strategy ”).

Agreed actions to take:

v    Fully fund ongoing schemes to ensure completion according to PC-1.

v    Include new schemes in ADP consistent with availability of funds in Medium Term Budgetary Framework (MTBF) projections and phasing in the respective PC-1 only after allowing for requirements of ongoing schemes.

v   Quarterly report of pro-poor expenditures based on civil accounts to be posted on Government website within 60 days of end of quarter.

v   Allocate budgetary resources on basis of revised yardsticks for O&M of physical infrastructure and link funding for O&M of roads to collections from fuel levy (see Outcome 1).

Indicative achievement targets under subprograms 2 and 3:

Increase allocations through MTBF. Provide for continued and increase in education and health sector allocation on yearly basis (at higher rates than average budget increase).

Tranche 2 Achievements: (i) FD to further improve information content and presentation of budget documents; (ii) Draft MTBF prepared by FD to include sector-wide budget planning for education and irrigation (one devolved sector and one retained sector) and a multi-year profile for development spending across all sectors.

Agreed actions to take:

v    Prepare budget documents in MTBF mode.

v    Provide information on listed items as annexures in Budget documents.

v   Present and disseminate information through White Paper on the Budget on (i) contingent liabilities; (ii) losses of off-budget enterprises; (iii) tax concessions and exemptions; (iv) subsidies; and (v) state of infrastructure in the province.

Indicative achievement targets under subprograms 2 and 3:

Progressively improve the MTBF. Enhance further information content and append annual accounts of PSOs to budget documents.

Tranche 2 Achievements:  Make results of intergovernment financing public and accessible. (i) PFC to produce the annual report for FY2003. (ii) Finalize and publish the results of the study of the merits of alternative intergovernmental grant and program financing modalities for the implementation of province policy priorities.

Agreed actions to take:

v    Publication of the PFC annual report on the Government website.

v    Finalization, discussion (e.g., at PDF) and publication of study documents on alternative intergovernmental financing modalities for service delivery (e.g., conditional / matching grants, province program financing, etc.).

v    Undertake a technically informed study of the merits of different modalities for  intergovernmental transfers, grants and financing arrangements for discussion at subsequent PDFs and publication on Government website

Indicative achievement targets under subprograms 2 and 3:

Institute improved performance and incentive-based grants system for local governments providing for equalization across local governments, rewards for greater fiscal effort by local governments and good performance with pro-poor targeting of services delivery.

Tranche 2 Achievements: (i) S&GAD to disseminate transparent and simplified purchase manuals for goods and services by provincial and local government. (ii) FD to report on experience with implementation of new procurement procedures and where appropriate provide recommendations on modifications.

Agreed actions to take:

v   S&GAD to prepare manuals to operationalize procedures for procurement of goods and services. (ADB DSP TA loan support).

v   Prepare and commence implementation of training activities for province line departments, district and tehsil agencies and officers responsible for procurement. (ADB DSP TA loan support).

v   FD to analyze procurement  experience of line departments and local governments, highlighting consistency of practice with procedures and standards and the need for refinement of procedures, and progress with training of line departments and local governments in application of procedures.

Indicative achievement targets under subprograms 2 and 3:

Continue capacity building with province and local government procurement agencies, increase public transparency and accountability in procurement process.

Tranche 2 Achievements:   (i) FD to continue to support the capacity of local governments to maintain accurate and reliable accounts on a timely basis. (ii) Establishment of a PAC. Government to support effective functioning of PAC. 

Agreed actions to take:

v    Assess needs for strengthening of DAOs.

v    Provide adequate human, technical, hardware and financial resources to DAOs.

v    Prepare and initiate implementation of action plan for training of personnel in FD, DAOs, TMAs and Union Administrations in financial management and financial rules and procedures.

v    Initiate a program to upgrade the human, technical, hardware and financial resources available to TMA accounting offices.

v    District governments to provide quarterly expenditures, receipts and cash balance position to be placed on Government website.

v    Holding PAC meetings/hearings as per law.

v    FD to develop and announce a policy on the implementation of PAC rulings.

v    Publication of accounts on Government website.

v    Reconcile accounts by function and object for FY2003.

v    Report provisional actuals for revenue and expenditures in budget documents within six to nine months of the end of each fiscal year.

Indicative achievement targets under subprograms 2 and 3:

Continue capacity building, with extension of training (with support of PIFRA). Adopt accounts codes under NAM. Establish systems and accountability mechanisms that ensure application of rules. Revise financial rules to ensure consistency with the new accounting framework. Regularly hold PAC meetings and monitor implementation of PAC directives.

Tranche 2 Achievements: Approve a medium-term poverty focused investment strategy for Punjab which links strategic outcomes/targets from PPRSP with expenditure commitments in MTBF, reflecting national policy commitments, and incorporating the results of intensive public consultation.

Agreed actions to take:

v   Public consultation on MTBF, through PDF or similar.

v    Consistency of MTBF with the PPRSP.

v   Develop poverty focused investment strategy for Punjab through intensive public consultation.

v   Cabinet approval of poverty focused investment strategy for Punjab and posting on the Government website.

Indicative achievement targets under subprograms 2 and 3:

Implementation of strategies, policies and plans. Continue strengthening capacity of P&DD for strategic planning. Implement recommendations for improvement in laws/policies.

Tranche 2 Achievements: (i) Sector-specific strategies to improve service delivery outcomes prepared by departments responsible for health, education and municipal services. (ii) P&DD to publish an annual report on capacity building of local governments undertaken by the provincial government to enhance the medium-term planning and budgetary capacity of local governments (initially for health, education and municipal services).

Agreed actions to take:

v   Meetings/consultations between provincial and local governments to reach agreement on sector priorities, service delivery mandates and respective project approval limits.

v   Preparation and approval by competent authority of departmental strategies for actions by departments responsible to improve health, education and municipal services including role of the department with respect to policy, standard setting, technical support and mentoring of lower level service delivery agencies, monitoring and evaluation, and public access to information and administrative dispute resolution.

Indicative achievement targets under subprograms 2 and 3:

Implement revised procedures for preparation of ADP and sector development programs.

Tranche 2 Achievements: (i) P&DD to develop the format for (including a system of third party validation) the annual performance reports produced by agreed line departments for consolidation by P&DD into its annual performance report on progress in implementation of poverty focused investment strategy.
(ii) P&DD to prepare and publish annual report on capacity building actions by the province for local governments, and performance against approved poverty focused investment strategy objectives (with respect to agreed line departments), in user friendly, comprehensive and meaningful format.

Agreed actions to take:

v   Reconciliation of actual expenditure against budget estimates and revised estimates for development spending and non-salary current expenditures by sector on the basis of civil accounts. To be reported on Government website quarterly.

v   Multiple Indicators Cluster Survey published.

v   ADP performance review giving both financial and physical achievements against targets, together with throw-forward.

v    Publication of P&DD annual reports on Government website.

v    P&DD to develop new mechanisms for tracking of O&M works.

v    Initiate steps to build capacity for improved monitoring of performance parameters for public service delivery and tracking and assessing program impact such as for service coverage, benefit incidence, cost effectiveness, etc.

Indicative achievement targets under subprograms 2 and 3:

Further improve performance monitoring and evaluation systems.

Tranche 2 Achievements: (i) Government to approve the results of P&DD’s inquiries and technical studies on the adequacy of structure, systems and procedures for P&DD to effectively perform its assigned role inclusive of poverty reduction. (ii) P&DD to initiate implementation of approved recommendations of P&DD’s study, including restructuring and capacity building. (iii) Progress in administrative restructuring of FD consistent with the shift toward MTBF and agreed plans.

Agreed actions to take:

v   Each of P&DD and FD  to conclude technical studies of its functions and responsibilities. Each study to recognize (i) the implications of medium-term planning (PFIS) and medium-term budget and expenditure management, (ii) the reassignment of responsibilities (a) between P&DD and FD (as applicable) and line departments and (b) between the province and local government; and (iii) new procedures for project planning, approval, budget allocation, monitoring and evaluation, and technical support to local governments and line departments.

v   Chief Minister to consider and approve such studies.

v   Each of P&DD and FD to take steps to commence implementation of approved recommendations.

v   FD to combine expenditure and budget functions, and initiate capacity building activities to implement MTBF.

v   Further improve office automation and computerization for FD.

v   Provide in-service training for FD and staff at district levels with the help of Management and Professional Development Department, State Bank of Pakistan (National Institute of Banking and Finance) and Institute of Audit and Accounts.

Indicative achievement targets under subprograms 2 and 3:

Further implement and expand restructuring plans and undertake capacity building of selected departments.  Enhance capacity of line departments including for drafting consistent rules and regulations.

Tranche 2 Achievements: (i)  S&GAD  to initiate full, gender-disaggregated civil service census to support development of a human resource database of provincial government employees. (ii) Government to develop operational plans for effective application of information technology and computer systems in public sector human resource management. (iii) Government to develop a long-term strategy to gradually reduce share of expenditures on salaries and pensions.

Agreed actions to take:

v  S&GAD to initiate civil service census of provincial employees and establishment of human resource database

v  S&GAD to engage technical support to determine the institutional location of the human resource database, determine how to reconcile the human resource database with the payroll database, and establish systems for updating the human resource database.

v  Prepare action plan and implement policy statement announced by Government to restrict permanent recruitment and shift to contract appointments based on contributory provident/pension funds.

v  Engage in public consultation on proposed action plan regarding restriction of permanent recruitment and shift to contract appointments.

v  Review and finalize list of actions required (including amendments, if any) to effect legislative changes to cover contract appointments.

Indicative achievement targets under subprograms 2 and 3:

Reduction in provincial staff levels through transfer of staff from provincial to district governments, while ensuring social obligations for protection of labor rights. Upgrading of skills through implementation of continued education programs.

Tranche 2 Achievements: Government to (i) define the responsibilities of the PSC in relation to local government employees; (ii) notify rules on transfers to reduce frequency of turnover and ad-hoc transfers.

Agreed actions to take:

v    Government in consultation with PSC and local governments to define and announce agency to be mandated the responsibility for recruitment of local government employees in grades BS 11 – BS16 (e.g., whether the PSC or an alternative administrative set up will take responsibility).

v    Develop and approve format for annual report on turn over in key positions.

v    Approve a revised transfer policy with the intention of reducing frequency of turnover and ad hoc transfers.

Indicative achievement targets under subprograms 2 and 3:

Implementation of new rules, and monitor compliance/effectiveness.

Tranche 2 Achievements: Comprehensive implementation of Government-approved GRAP with demonstrable progress on commitments made.

Agreed actions to take:

v      Implementation of actions as set out in approved GRAP.

Indicative achievement targets under subprograms 2 and 3:

Comprehensive implementation of GRAP.

Tranche 2 Achievements: Implement new labor policies, rules and implementation mechanisms (reflecting policies, rules and regulations at the federal level, including on child labor). Develop environment policies through adequate stakeholder consultation. Initiate capacity building for implementation, including formulation of transparent and adequate rules/regulations, training and dissemination.

Agreed actions to take:

v  Revise and prescribe transparent and simple rules, regulations and administrative mechanisms for implementation of new labor legislation, that assure adequate protection of worker’s rights while minimizing discretionary powers of Government officials. Adopt the new rules, regulations and mechanisms following the proceedings of a tripartite conference (government, employer and employees).

v  Improve system for transparent registration under PESSI to ensure that every employee has coverage.

v  Approval of environmental protection policy and appropriate environmental standards. Develop effective and transparent implementation mechanisms with emphasis of self-assessment and monitoring.

v  Conduct workshops and training seminars on labor, public safety and environmental regulation for government officials and private sector.

Indicative achievement targets under subprograms 2 and 3:

Continue dialogue with stakeholders (including private sector) for further improvements in regulatory environment. Monitor effectiveness and compliance with revised regulations.

Tranche 2 Achievements: Government to initiate the development of an action plan (with ADB TA loan assistance) in line with the agreed findings of the study. 

Agreed actions to take:

v   Initiation of preparation of action plan (as above), agreement on terms of reference and appointment of consultants.

Indicative achievement targets under subprograms 2 and 3:

Implement plans and operationalize land registry.

Tranche 2 Achievements: Redefine provincial role in promotion of investment, and provide effective programs and value-added services for investment facilitation. Restructure industrial estates. Review role and support administrative reforms in Industries Department. Initiate capacity building of key departments for private sector regulation and contract management.

Agreed actions to take:

v   Further develop and refine policies and strategies in consultation with relevant professional bodies to facilitate investment, productivity and small and medium enterprise support (nonsector specific).

v   Strengthen Industry, Investment and Commerce Department to enable it to perform its redefined role.

v   Review operations and performance of Investment Facilitation Center and recommend measures to strengthen linkages to PIB and BOI.

v   Review operations of existing industrial estates to assess their viability. Initiate restructuring, including privatization, or liquidation. Rehabilitation and development of at least 2 existing industrial estates with private sector participation.

v   Define institutional arrangements and identify areas for capacity building to provide support to public-private partnerships, including for contract and risk management. (With ADB support under project preparatory TA for ‘Public-Private Infrastructure Financing’).

Indicative achievement targets under subprograms 2 and 3:

Upgrade capacity of provincial government to interface effectively with the private sector and contract management for public-private partnerships. Improve agricultural extension services and capacity building/training to enhance agricultural productivity and market access. Further encourage private sector involvement in SME business support services.

Tranche 2 Achievements: Initiate plans for PSO reforms, to include review of role of PSOs, assessment of financial position and operational relevance, and recommendations for future course of actions such as privatization/divestment, liquidation or restructuring. Initiate restructuring and improvement in corporate governance for selected agreed PSOs to remain in public ownership.

Agreed actions to take:

v   Engage consultants for comprehensive review and design of priv