Aftab Anwar Baloch
Track & Trace system is a software-based platform designed to streamline tax collections on the entire supply chain of selected industry goods from production to retail for different types of goods and commodities, including cigarettes cement, sugar, fertilizer, beverages, POL products, pharmaceuticals, and other high-valued items. Similar systems have been used for decades globally by many countries and have proven to be notably successful both in terms of a rise in tax collections and a reduction in illicit trade and counterfeit products.
The system allows both government and businesses to track the movement of goods from the manufacturing of finished products through distribution and finally retailers and consumers. The system provides electronic monitoring and capability for government officials to track real-time data on the production, distribution, and sales of goods via a smartphone application that is linked to the national database. Tax authorities can monitor these transactions closely, identifying discrepancies or irregularities that may include tax evasion and illicit trade. Illicit products that move within the country via smuggling or through exported products can be tracked and traced through this data network by international cooperation between the countries importing and exporting goods. The same can also be very effective in intercepting the smuggling of goods through long and porous borders of countries like Pakistan. FCTC and Protocol on Illicit Trade have recommended and emphasized the adoption of fiscal marking solutions for TTS by well-reputed international solution providers.
Tax evasion is a significant issue in Pakistan, a recent international report on tax evasion stated that Pakistan faces significant losses (Rs956 billion) due to tax evasion and illicit trade in key sectors. The tobacco sector alone incurs losses worth Rs240 billion due to the activities of illicit manufacturers. Source: Dawn e-paper
The Federal Board of Revenue (FBR) in Pakistan is responsible for collecting and administering various taxes, including income tax, sales tax, federal excise, and customs duty. One of the significant challenges faced by the FBR is to track the movement of goods within the country and abroad in the form of smuggling and counterfeit products which on the one hand loses the chunk of due and leviable taxes and on the other hand results in loss of lives of the citizens due to usage of illicit and counterfeit/unhealthy products being consumed.
To curb the menace, increase revenue, reduce counterfeiting, and prevent the smuggling of illicit goods, Pakistan rolled out a track-and-trace solution for Tobacco,
Cement, Sugar, and Fertilizer sectors in its first phase in July 2021 with a plan to extend it to other sectors like lubricants, tiles, beverages, pharmaceutical products tires and tubes, steel products, etc. The system is implemented through a consortium comprising Authentix Inc, AJCL Private Limited, and MITAS Ltd, who were awarded a license for the TTS project through the open and transparent bidding process, with the entire process being initiated and managed by the Federal Board of Revenue (FBR).
The government implemented a T&T system requiring manufacturers to invest in stamping each bag or pack with unique, secure, and non-removable identifiers. These identifiers are scanned upon sale to the manufacturer, with data transmitted to the FBR for monitoring of production and ultimate revenue collection based on actual production figures and reconciliations. The initial rollout was delayed several months due to legal action by losing competitors and some manufacturers. Also, like any newly implemented program, it faced technical glitches and infrastructure limitations of certain manufacturers. Some tobacco manufacturers raised concerns about the costs of implementing the system and its impact on their operations.
The FBR’s Track and Trace System encountered several early challenges. The difficulties during its implementation were faced in the form of litigation in courts, misperception about the system, lobbying by different manufacturers to thwart the system, and similarly improper selection in hardware for aged manufacturing lines, and system integration. These factors initially compromised the system’s reliability and consistency of implementation. Consequently, this led to operational inefficiencies and downtimes across various sectors, thereby impacting the startup of the program.
The FBR was supposed to complete the project by February 2022, but lack of will at the top, a lack of resolve to deliver their obligations, a lack of attention to the national interest, bureaucratic inefficiencies, delay in signing agreements with the relevant sectors, incompetence of FBR officials, ineffective maintenance of equipment by manufacturers, and resistance by several industry players further delayed the implementation of T&T System. The system became more controversial with the change of political leadership at the higher level. The system was initiated and inaugurated by Imran Khan’s Government but the same became controversial once the Government of Shehbaz Sharif came in power. Due to changes in the scenario and leadership changes at the Prime Minister, Finance Minister, and Chairman FBR level, a lot of hue and cry was made that an obsolete and ineffective system has been installed through an unfair and non-transparent manner. The lobbies and the manufacturers who initially resisted the system put fuel on the fire and a lot of criticism and allegations were levelled against the installed TTS in the media including print, electronic, and social media platforms. This media coverage, fair or not, forced the government to initiate an inquiry against various officers of the FBR from the Chairman to the Project Director of TTS. The Sharif Government changed the entire team handling the TTS project and posted a new team after the change of political leadership. The Inquiry Committee recently formed by the Prime Minister to investigate the issues including the malfunctioning of TTS concluded FBR was at fault and that two high-ranking FBR officers including the current Chairman FBR were found, responsible for either not taking necessary and reasonable decisions, legally raised by the Licensee or making deliberate wrong decisions which resulted in the delays in the implementation of the Track & Trace system. The top leadership of FBR has also failed to initiate and bring new sectors under the TTS horizon, that had been recommended by the Special Investment Facilitation Council (SIFC). Pakistan is suffering with loss of additional revenue to the tune of hundreds of billions of Rupees for these delayed decisions and incompetency resulting in delayed implementation.
Recently, Prime Minister Shehbaz Sharif took serious notice of the slow progress in the implementation of the Track & Trace system across key sectors. Chairing a meeting regarding
the track and trace system in Islamabad, “Prime Minister decided to take measures against tax defaulters and tax evaders on an emergency basis and directed that all such factories which refuse to install track and trace system should be sealed immediately. He also decided to personally look into the TTS affairs and review its progress from time to time.”
The PM was informed by the FBR that the track and trace system is fully functional in 14 big tobacco factories while 12 factories have been sealed due to lack of a system and is fully functional in all fertilizer industries. There were some site readiness issues in the application of the system in sugar and cement factories, but remedial measures are being taken to fix them. It was also informed that warehouses are being raided to prevent smuggling across the country.
A detailed briefing was given in the course of the meeting on the current status of the Tax Reforms, Digitalization, and Modernization of automated tax system in FBR besides making TTS fully functional in the sugar, cement, fertilizer, and tobacco industry. Shehbaz Sharif formed a new committee that will submit suggestions on the future strategy for the application of automatic tax systems in factories.
The FBR has acknowledged the achievement of T&T System on various forums and the crucial role that it has played so far in bringing overall transparency in the production data, making it easier to digitally monitor the production, and has reduced suppression of production which minimizes the evasion.
Pakistan has made significant progress towards modernizing tax administration and curbing illicit trade by introducing this state-of-the-art solution across key sectors. A sustained effort to expand the tax base is crucial; there is a need for the government to depoliticize the system and take fair and decisive action in the national interest against those who continue to resist the implementation of the T&T system.
Though the implementation of the system has encountered various challenges along the way, efforts are ongoing to address the challenges and improve the effectiveness of the system. The government and stakeholders are working towards better integration and enforcement to improve and ultimately achieve the estimated goals of reducing illicit trade and enhancing tax compliance.
It is high time that the present government should bury the controversy hatched against both the former bureaucrats and the Licensee who were awarded the contract to carry out its day-to-day operations.
On top of all the blunders FBR has made, recently FBR took a step forward and issued show cause notices to the Licensee who were awarded the License, on merit, by the previous government as to why their license should not be revoked/cancelled. This move of FBR will result in litigation create various glitches and further unnecessary delays in the system presently in vogue and discourage any new foreign investment in Pakistan. This step is being closely monitored by the Global Donor Agencies WB/IMF and the new investors in-waiting, to see how the incompetency of a Federal Government Department deals with the investment in Pakistan.
It’s time to end the controversy, support the Licensee and FBR, and work fairly and transparently by taking on board all the stakeholders.
The FBR Officers should also stop playing the role of MORE LOYAL THAN THE KING and let the system work in the national interest rather than making it more controversial and politicized in order to make the present political leadership happy. This will be a win-win situation for all and a good omen for the future of Pakistan.
The then PM Khan inaugurates T&T System on Sugar Sector in 2021 Image Source: Federal Board of Revenue (FBR)
PM Shehbaz Sharif chairing a meeting regarding the progress of TTS Image Source: Dawn
PM Shehbaz Sharif recent statement on Track & Trace System Image Source: Profit by Pakistan Today
The writer is Customs, Tariff and Trade Expert.