Despite its tremendous success in the sugar industry, the Federal Board of Revenue (FBR) has failed to implement the Track and Trace system in the tobacco industry.
The Track & Trace System was a groundbreaking project aiming at improving sales tax collection and digitization in the economy’s four core industries (cement, sugar, fertiliser, and tobacco).
According to high-level sources, the FBR is likely to extend the deadline for implementing the Track and Trace system in the powerful tobacco sector.
Several international corporations have also hired retired officials from the Pakistan Muslim League-Nawaz (PML-N) administration to act as interlocutors on their behalf. They were able to persuade the Minister of Finance to give them more time after a lot of lobbying.
Several discussions between the industry and the tax agency were held at the FBR last week, and the latter has taken a determined stance to see that the programme is implemented because of its critical relevance to the national economy in light of the industry’s habitual tax evasion and under-reporting.
In the sugar sector alone, the FBR saw a 33 percent increase in tax collection and reporting of an additional 1.7 million tonnes, compared to the six million recorded during the previous crushing season. It was assumed that comparable outcomes would occur here as well.
According to the sources, the FBR alerted the tobacco sector of the May 20 deadline, but no local business has installed the system, and global corporations such as Pakistan Tobacco and Philip Morris have only implemented the system on a few lines.
They said that local businesses refuse to pay for Track and Trace installations, and that they have filed a lawsuit in the Peshawar High Court to that effect. Tobacco companies are prohibited by law from removing items from plant premises without tax stamps, yet this parliamentarian-backed industry has failed to completely implement stamper machines in its operations.
In a recent investigation, the Federal Tax Ombudsman (FTO) called the tobacco industry “a notorious nexus of huge evasion of duty, taxes, and illicit trade.” Despite the fact that the sector provided roughly Rs. 130 billion in duty and taxes in 2020-21, the FTO’s internal investigation revealed widespread tax evasion at the GLTs stage.
This was clear because, according to the FBR’s findings, there was an alarming disparity between tobacco produced (according to Pakistan Tobacco Board figures) and tobacco consumed in claimed cigarette production (as per the tax record).
From 2019 to 2020, the FTO has proposed that the FBR perform a yearly review of cigarette tobacco produced in Pakistan vs stated tobacco consumption by all cigarette manufacturing facilities to determine the revenue loss caused by unaccounted for tobacco.
The FBR had established a strategy to execute the Track and Trace system, as ordered by the International Fund (IMF), and had successfully launched the system on one of the lines in October 2021. Due to capacity concerns within the FBR, the sector was able to exert influence over the new government. However, in light of Pakistan’s acute need for revenue generation and IMF commitments, this is inexcusable.
According to the sources, if the FBR gives the tobacco sector more time, the installation of the Track and Trace system in other industries, such as sugar, cement, and fertiliser, will be postponed.