By Staff Reporter
ISLAMABAD: The much-hyped Track and Trace System (TTS) has failed to bring major tax-evading sectors into the tax net, primarily due to the Federal Board of Revenue’s (FBR) inability to implement the technology-based solution seamlessly.
Technology alone cannot curb tax evasion; it requires a concerted effort from tax authorities to take decisive action against offenders. The willingness to enforce the law and hold perpetrators accountable is crucial in combating tax evasion.
The FBR’s inability to implement the TTS seamlessly has resulted in a lack of progress in tackling tax evasion. The system’s failure to track and trace untaxed products has allowed illicit cigarettes to continue flooding the market, depriving the government of much-needed revenue.
The TTS, aimed at curbing tax evasion, was introduced for various sectors, including tobacco, sugar, cement, and fertilizer. However, its implementation has been marred by challenges, allowing untaxed products to flood the market.
The FBR and the Azad Jammu & Kashmir (AJK) Revenue Authority’s Memorandum of Understanding (MoU) to implement the Track and Trace System (TTS) has been put on hold due to a stay order from the AJK Court. This development has significantly undermined the TTS implementation, as the AJK cigarette industry has become a major source of untaxed cigarettes flooding into settled areas of Pakistan.
Despite the presence of a police check post at Kohala Bridge, there is no effective mechanism to curb this illegal trade. In contrast, check-posts in Bhimber have strict controls in place to prevent the entry of untaxed cigarettes.
The FBR’s inability to seize these smuggled cigarettes raises questions about its effectiveness in enforcing tax laws. The absence of TTS in AJK has created a tax evasion hotspot, with significant revenue losses for Pakistan. The stay order on TTS implementation has further complicated matters, allowing the illegal cigarette trade to thrive.
Estimates suggest that illicit, smuggled, and counterfeit cigarettes have exceeded Rs300 billion, outpacing the formal sector’s contribution of Rs265 billion in the last fiscal year.
The TTS has increased costs for manufacturers while failing to apprehend illicit cigarettes, causing losses to both the national exchequer and the formal sector. Only multinational companies have implemented the TTS in its true spirit.
An internal FBR analysis revealed that Pakistan Tobacco Company (PTC) paid taxes in line with placed TTS stamps, but the findings were never made public.
A blame game continues, with the FBR attempting to shift responsibility to the consortium responsible for implementing the TTS. Effective enforcement is crucial for the TTS’s success.
Without a strategy to track, trace, and seize packs with no TTS or fake TTS, the system will remain ineffective in curbing tax evasion.
Experts argue that the TTS’s failure is attributed to the lack of effective enforcement mechanisms, inadequate infrastructure, and insufficient training for FBR officials.
The FBR must revisit its strategy and engage with stakeholders to address these challenges and ensure the TTS’s success.
The TTS was initially introduced in 2019, with the aim of tracking and tracing the movement of goods to prevent tax evasion. However, its implementation has been plagued by delays, technical issues, and resistance from certain industries.
In the tobacco sector, for example, the TTS has failed to curb the flow of illicit cigarettes into the market. According to industry sources, illicit cigarettes account for nearly 40% of the total market share.
The FBR has attempted to address these challenges by introducing new regulations and penalties for non-compliance. However, these efforts have been met with limited success.
To address these challenges, the FBR must engage with stakeholders, including industry representatives, to develop a comprehensive strategy for implementing the TTS. This includes providing adequate training for FBR officials, investing in infrastructure, and developing effective enforcement mechanisms.
Furthermore, the FBR must also address the issue of fake and counterfeit TTS stamps, which have flooded the market. This requires developing a robust system for tracking and tracing the movement of goods, as well as implementing penalties for those found guilty of counterfeiting.
The TTS has failed to deliver on its promises, and it is imperative that the FBR revisit its strategy to ensure the system’s success. This requires a comprehensive approach that addresses the challenges faced by the TTS, including inadequate infrastructure, insufficient training, and ineffective enforcement mechanisms.
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