Aftab Anwar Baloch
The Federal Board of Revenue (FBR) Pakistan, after more than a decade of strenuous efforts, successfully deployed the Track and Trace System (TTS) across four key sectors tobacco, sugar, cement, and fertilizer. This robust system, featuring secure fiscal marking through barcodes and unique identification codes affixed to each product unit to enable real-time authentication and tracking of production and distribution, was aimed at modernizing the revenue collection and crack down on illicit trade.
The system played a pivotal role in bolstering the national exchequer by enhancing the visibility of production and enabling data-driven decision-making. The initiative has significantly strengthened tax compliance, curbed illicit trade, and promoted the digitization of economic activity. The TTS has not only increased tax revenues but also helped create a level playing field for all market players. This breakthrough technology enabled FBR to gain actionable insights into production data, which aids in identifying discrepancies and enforcing compliance.
The impact of TTS has been significant in revenue enhancement and minimisation of tax evasion, besides reducing illicit trade. In the fiscal year 2023–24 alone, the sugar sector’s sales tax revenue rose from ₨76 billion to ₨ 98 billion, while cement sector collections increased from ₨41.8 billion to ₨ 66.6 billion, an impressive 59.5% jump. The tobacco industry witnessed even steeper gains, sales tax rose from ₨36.9 billion to ₨ 60.7 billion (a 64.3% increase), and Federal Excise Duty surged from ₨142 billion to ₨ 237 billion, marking a 66.9% rise. Overall, the FBR’s FED collections climbed from ₨ 369.9 billion to ₨577.4 billion, representing a 56.1% increase. Consequently, the FED’s contribution to FBR’s overall tax collections increased from 5.2 percent to 6.2 percent. These figures validate the effectiveness of the TTS framework in plugging revenue leakages and boosting compliance in traditionally under-documented sectors.
However, despite these significant gains, and to the dismay of many, the FBR is reportedly considering replacing the current TTS with a simplified video analytics-based production monitoring system. This new approach, named ‘Digital Eye’, refers to specialised software used by the FBR to monitor and capture quantitative production data in real-time. This system can identify and count unique objects and behaviours, providing an accurate quantity of production output through video inline capture.
The consideration of using Digital Eye to replace the current TTS now in place is tantamount to virtually dismantling the overall progress made so far. The TTS system’s comprehensive features, including its secure fiscal marking and real-time monitoring capabilities, ability to authenticate individual units, track provenance, etc. have been acknowledged through the increased tax revenues and a positive impact on market regulation. Moreover, by ensuring that only compliant and authentic products enter the supply chain, the TTS system has delivered clear health and safety benefits to the public. The Digital Eye system, if deployed, does not provide certainty of authentication, does not provide capabilities of tracking and tracing products, and there is no consumer application to verify authenticity.
The existing TTS has been largely successful in ensuring compliance and revenue enhancement (as informed by a source in FBR IREN team) and it has provided FBR with a platform to have effective control over the tobacco industry production initially and could now be enlarged to other products on which TTS is being enforced.
In contrast, this new approach, now under consideration, will only provide a count of production volumes without its own internal checklist or a fail-safe mechanism to ensure the authenticity of the product. In effect, it cannot distinguish between products on which legitimate tax has been paid and those that are counterfeit or produced without regulatory oversight. This simplified system offers no improvement in detecting smuggled or counterfeit goods, meaning that a critical tool for ensuring market integrity and supporting the Integrated Revenue Enforcement Network (IREN) teams will be effectively side-lined. In essence, it would be a cosmetic form of digitization and an eye wash with no practical benefits for compliance or enhanced revenue generation. Critics argue that this move is nothing more than ticking the digitization box, as it fails to deliver the practical benefits such as enhanced revenue collection and consumer protection, that the TTS system has already provided.
Adding to this, policy inconsistency is the broader failure of FBR to align its actions with the structural tax reforms being pushed by global financial institutions. The International Monetary Fund (IMF) and World Bank have persistently urged Pakistan to widen its tax base, digitize its economy, and tax all segments equitably. Yet, FBR’s actions appear half-hearted. Instead of targeting powerful non-compliant groups such as retailers, wholesalers, big business lobbies, and politically connected real estate tycoons, the FBR continues to tighten the regulatory noose around already registered and compliant tax-paying manufacturers and salaried individuals who are already burdened with advance and withholding taxes.
Whenever there is a shortfall in revenue, FBR resorts to burdening existing taxpayers further, rather than expanding the net and enforcing existing tax regulations to identify tax-evading individuals and undocumented businesses. This regressive approach not only contradicts the spirit of tax reform but also indicates an alarming tilt towards becoming part of a powerful lobby that resists the broadening of the tax base. By avoiding reforms that would bring unregistered traders and large-scale business groups into the tax net, the FBR undermines both fiscal sustainability and economic equity.
Considering these latest developments, retaining and expanding the TTS is essential, rather than weakening it in favour of a diluted video-counting production model. Both the Government and the International Donor Agencies must review the approach in order not only to safeguard the taxpayer’s money but also to ensure maximum value from a Program that helps the country achieve its revenue targets.
The current pivot away from a secure, robust system like TTS towards a simplistic production counting model appears to be an “eye wash,” a superficial change that fails to deliver the safeguards and efficiencies that have already contributed to a more accountable economic framework.
