Aftab Anwar Baloch
Although Pakistan is still grappling with the nationwide rollout and effective enforcement of its tax stamp and production monitoring system – introduced in 2021 on tobacco products, sugar, cement and fertiliser – the Federal Board of Revenue (FBR) has now turned its attention to extending a similar system to other sectors at high risk of tax evasion – including tiles, tyres, iron and steel, textiles… and day-old chicks! In fact, if FBR’s current procurement projects are anything to go by, it won’t be long before production monitoring controls extend across much of Pakistan’s formal manufacturing base. However, extending the system into new sectors before it has been fully stabilised in the current ones, runs the risk of replicating – and amplifying – existing weaknesses across a far broader industrial base, with limited corresponding gains in tax revenue.
Let’s take a closer look at the challenges encountered with Pakistan’s current production monitoring coverage, as well as consider the latest batch of procurement notices directed at new sectors, and how FBR will need to strengthen its institutional capacity before embarking on this ambitious expansion.
Inexperienced officers and faulty assumptions
Pakistan’s production monitoring and traceability system was first introduced in 2021 as a flagship digital enforcement initiative to curb large-scale tax evasion in the tobacco, sugar, cement, and fertiliser sectors. The system introduced real-time monitoring of production and distribution through secure tax stamps. Policy assessments at the time suggested that nearly half of production in these industries was vulnerable to smuggling, counterfeiting, or underreporting, with illicit tobacco alone costing the national exchequer PKR 77 billion ($275 million) annually. However, the foundational assumptions underpinning the system’s rollout soon proved inaccurate. While initial implementation plans targeted a limited number of production lines across industries, subsequent surveys revealed substantially higher industrial capacity than anticipated.
Cement production lines numbered 211 rather than the projected 150, sugar production lines reached 300 instead of 160, fertiliser lines increased to 79 from 50, and cigarette production lines nearly doubled compared to official estimates. This large-scale underestimation of production capacity significantly undermined implementation effectiveness, leaving a substantial portion of manufacturing outside the monitoring framework and allowing unstamped products to continue circulating in formal markets.
Administrative and contractual delays and mismanagement further weakened implementation, with a government inquiry finding that the project had been handled by officials with no experience in federal excise duty and sales tax enforcement. Furthermore, major loopholes went unaddressed; the output of cigarette producers based in Azad Jammu and Kashmir (a self-governing region with lower taxes and softer regulations than Pakistan), was finding its way into Pakistan, without the producers in question ever being integrated into the FBR monitoring system.
By mid-2024, a parliamentary inquiry noted that 55% of production capacity in the four sectors remained unmonitored, directly translating into a huge evasion of income, sales and excise taxes.
Turning point?
However, by 2025, we heard that FBR had begun to turn the situation around, by intensifying enforcement efforts across the four sectors, and by linking those efforts to broader digitisation and compliance activities. In the sugar sector, for example, FBR succeeded in actively sealing all sugar mill production chutes that violated digital monitoring requirements.
In January 2026, FBR felt confident enough to announce that the production monitoring programme had reached a point where expansion into new, high-risk industries could now move ahead, which implied that a sufficient level of operational stability and compliance monitoring capacity had been attained.
Already back in October 2025, the FBR had released an invitation to bid for an end-to-end production, traceability and authentication system for the tile industry – although this invitation was promptly cancelled a few weeks later. Rather than signalling retreat, however, the cancelled tender appears to indicate a brief period of procurement recalibration amid the relentless thrust towards system expansion.
Indeed, by February 2026, three new procurement notices had been issued: for tyres, iron and steel, and – surprisingly – day-old chicks. The notices call for systems comprising serialisation, automated unit counting, centralised data platforms, AI-based vision analytics and anomaly detection, and mobile verification tools.
Concerns remain
Despite this renewed confidence in the readiness of the system to expand to other sectors, significant concerns remain as to whether Pakistan has the institutional capacity to handle the expansion. The 2021 rollout of the system had exposed systemic weaknesses that included inadequate data collection, prolonged bureaucratic processes, fragmented institutional coordination, and insufficient integration between enforcement agencies. If these weaknesses are not properly addressed, similar structural challenges will no doubt arise in newly targeted
sectors, many of which consist of small, dispersed manufacturing units with limited regulatory engagement.
Technology can’t do it alone
The experience of Pakistan’s production monitoring and traceability system illustrates a central policy dilemma: technological solutions alone cannot compensate for regulatory instability and enforcement fragmentation.
Unfortunately, the new tenders, like those that came before them, do not clarify how production data will be integrated into audit workflows, enforcement actions, or downstream market controls, leaving key elements of the compliance chain undefined at the procurement stage.
Another relevant comparison lies in the tenders’ narrow focus on factory-level controls. The tenders for cigarettes, sugar, fertiliser, and cement made no mention of how production monitoring would integrate with customs enforcement, transport oversight, or retail surveillance. This meant that non-compliant goods were able to circulate even when production monitoring was fully operational.
The current tenders, while technologically more advanced, adopt a similar enforcement logic by concentrating on production points while leaving inter-agency coordination and supplychain enforcement largely implicit. Successful expansion is going to need more than improved technologies. It will require coordinated and sustained action across commerce, industry, provincial taxation authorities, and customs enforcement agencies, supported by consistent policy signals and institutional ownership. Implementation will also necessitate robust digital infrastructure, integrated data platforms, and credible compliance verification mechanisms that remain intact despite administrative or political change.
