TTS inaction

LAHORE: It took three years for the government to realise that the Track and Trace System, envisaged in 2019 and launched in 2021, is still a nonstarter. Inaction on this project resulted in enhanced leakage of revenues.

The Track and Trace System is used around the globe to trace the manufactured final product from the producer to its disposal at the retail level. This documents the journey of that product at every level at which it changes hands. The need to install a track and trace system arrived in Pakistan when almost everyone in the economic field realized that some of the largest industries in the country were not revealing their actual production. This way, they were escaping hundreds of billions of revenue despite boasting fully documented sectors of the economy.

These sectors include the cement sector, sugar barons, beverage manufacturers, cigarette manufacturers, and fertilizer producers. An interesting fact about these sectors is that none is properly documented beyond the manufacturing level but, in the absence of TTS, they under-declare their production. The wholesalers and retailers do not pay sales tax directly, but the manufacturers pay the retail tax in advance and charge it from the wholesalers and retailers. Each sector commands a market of over one trillion rupees, and its wholesalers buying over a hundred billion of these products are mostly not registered in the sales tax regime. Each sector is not interested in the implementation of TTS.The elite class owns these sectors and is extremely influential. When they under-file their production, each producer saves from Rs20 million to Rs10 billion in duties and taxes. They do give a minor share of the booty to the revenue officials that manually oversee their production. The Track and Trace system for electronic monitoring of manufacturing and sales of products of these sectors is not fully operational, and its tracing part is almost nonfunctional.

It is ironic that it was the tobacco sector that appealed to the government to make TTS fully operational. This was because only two cigarette manufacturers are fully documented, and the incidence of duty on cigarettes is to the tune of 74 percent. There are hundreds of small cigarette producers that have not allowed the TTS to be installed in their premises because of their influence and muscle. Due to this, they evade huge duties and taxes. Smuggled goods are also traceable under TTS. It has been estimated that the cumulative tax evasion by domestic producers and smugglers is Rs350 billion per annum (it was Rs150 billion four years back).

All economists say that if the five large industrial sectors and smuggling are prudently monitored under TTS, Pakistan could generate revenues of over five trillion rupees annually, enough to wipe out our fiscal deficit.

The Prime Minister finally took notice of the non-implementation of TTS despite the fact that its monitoring was assigned to a private party, which was provided an office in the headquarters of the federal board of revenue and it needed the cooperation of FBR officials. The PM removed numerous high FBR officials from their posts and made them OSD. As usual in our setup, a committee has been formed to pinpoint culprits that were responsible for inaction on TTS. Some say that it is a ploy to cool down the issue. Most point out that no meaningful reforms are possible under the FBR that has always been averse to reforms."