Probes under way to ascertain flaws in FBR’s track, trace system

ISLAMABAD: The Prime Minister’s Office has initiated different inquiries to ascertain the flaws in the Track and Trace System (TTS) but there is no clarity as to how the system will be improved to plug the massive tax evasion in major revenue potential sectors.

Even the post of project director of TTS has now been given to an official against whom an internal inquiry was held in the FBR in the past whereby he was allegedly held responsible for causing a delay in introducing the TTS from 2013-14 onwards till 2020-21. Finally, bidding was done and the pilot project was implemented in 2021-22 under the conditions of IMF during the tenure of PTI-led government.

Top tax functionaries, in a background discussion, asked if the ongoing inquiries resulted in paving the way for excluding sugar and other powerful sectors from the system, this whole exercise will pose some serious questions about the intent and wishes of political masters.

The prime minister took a strong exception to the effective implementation of TTS last Friday and the FBR undertook stringent measures based on categories A, B, C and D, and all senior officers were made OSDs and placed into the admin pool of the Board.

According to an internal inquiry report a few years back on TTS, from 2013-14 practically the whole project was being dealt with at the level of a BS-18/19 officer having no experience in FED/ST enforcement, let alone combating evasion of duty/taxes in trade of illicit cigarette.

The focal officer, due to his lack of knowledge regarding the real dynamics of tobacco/cigarettes in Pakistan, failed to sensitize core stakeholders on the actual impact of cigarettes manufactured by the AJK-based cigarette companies.

Though all these companies have been set up by KPK-based cigarette manufacturers yet bulk of their production is sold in the Pakistani market. The introduction of Track & Trace in Pakistan without roping in the AJK tax authorities is leaving a major channel of tax evasion ajar. All proceedings on this issue are silent about this major loophole.

In Pakistan, LTUs Karachi, Islamabad and RTO Islamabad are the three IR field formations that hold jurisdiction over 99 percent of cigarette manufacturers. Throughout the proceedings, neither any input was sought from them nor they were invited to participate. Keeping the concerned enforcement authorities in the dark speaks volumes about the understanding of ground mechanics.

“To tackle the illicit trade in cigarettes, Pakistan government formed the Inland Revenue Enforcement Network (IREN) at the beginning of 2017. Within 12 months, it had seized approximately 1 billion.”

The FBR’s top management even showcased performance of IREN during its annual session with IMF but ironically during 2017-18 over a dozen meetings on Track & Trace were held but the focal officer never bothered to seek input from this internal forum and conveniently ignored the existence and work of IREN, the FBR’s main bulwark against illicit cigarette trade.

Smuggled and legally imported cigarette is a significant segment of cigarette trade in Pakistan. No field Customs authorities, especially Customs Intelligence, was ever consulted during the whole process nor this issue was ever raised by the custodian officer.

The FBR’s record reflects that this experiment of Track & Trace has been successfully launched by various countries in the world. While quoting the names of said states, primarily to give leverage to M/S SICPA, no effort has been made by the focal officer to ascertain the pros and cons of those states interface with this initiative.

For enforcement and implementation of this ambitious module, aggressive timelines were set in RFP, as SICPA on this account has an advantageous position, but nowhere timelines observed by the aforesaid states were ever mentioned during the proceedings.

The process of Track & Trace was kickstarted by European Union during 2014 but their website confirms, “Both the traceability system and the security features should be in place by 20 May 2019 for cigarettes and roll-your-own tobacco and by 20 May 2024, for all other tobacco products (such as cigars, cigarillos and smokeless tobacco products).” This fact has nowhere been shared by the focal person or the private members of TRIC.

Similarly, one of the petitioners had raised the issue that soon after introduction of Track & Trace in Turkey and Brazil a surge in counterfeit stamps was observed. This also has been conveniently ignored.

While inviting the stakeholders, only token representation of KPK based cigarette manufacturers is evident from the record. While Khyber Tobacco Company attended both, Souvenir’s representative attended one meeting and the rest of manufacturers remained absent.

Without going into the details of proper invitation, KPK based cigarette units pose the major threat to tax compliance in this sector. The record is silent on how the absentees could have been roped in. In the European Union, the extended dateline of 20th May, 2024 has been provided for small and medium enterprises. The website reads, “This will provide manufacturers of other tobacco products (which are often small and medium enterprises (SMEs)) with a longer period to adapt to and benefit from the experience gained before the systems become applicable to them.”

This is an inclusive professional approach. While introducing Track & Trace in Pakistan, FBR should have learnt a lesson from above.

One FBR chairman had decided to conduct a field survey before advertisement of RFP. The record is completely silent about any implementation of this important direction. Similarly, on 15th September, 2017, the chairman FBR had pointed out very serious flaws in the draft RFP. Later proceedings do not contain any deliberations on the subject.

Examination of record reveals that any adventurers with marginal professional knowhow can play foul with FBR’s strategic decisions. The record of whole proceedings though contains no direct evidence of corruption yet it is a fact that in January, 2014 the then FM had intervened on behalf of SICPA. Despite categorical defiance of FBR’s instructions, the senior management caved in without fixing the responsibility. All those whose instructions were flouted by the focal person are equally responsible for the whole hoax, the report concluded. This scribe contacted the ongoing inquiry committee heads, including Tariq Bajwa, former SAPM on Finance, and incumbent Secretary Finance Imdad Ullah Bosal and inquired about the objectives of these inquiry committees but got no reply.