FBR is unaware of 55% of production lines in key sectors

A recent report published by The Express Tribune has highlighted significant gaps in the Federal Board of Revenue’s (FBR) oversight of key economic sectors, with the FBR unaware of 55% of production lines in the cement, fertilizer, sugar and tobacco industries at the time of award of the multi-billion contract for tracking and tracing.

The contract, worth an estimated R25 billion, was awarded to Authentix Inc three years ago to improve monitoring and prevention of tax evasion.

Following the award of the contract, Authentix conducted a survey from December 2022 to January 2023, which showed that there are approximately 649 production lines in these sectors, significantly more than the 290 lines originally identified by the FBR. This discrepancy has raised serious concerns about the possibility of widespread tax evasion.

Prime Minister Shehbaz Sharif has ordered disciplinary action against senior FBR officials for mishandling the track and trace contract, which was meant to ensure real-time monitoring of production lines for more effective tax revenue collection.

The Authentix consortium, responsible for the end-to-end installation and operation of the track and trace system, connected production plants and import stations to FBR’s central control room.

Despite initial claims of including 150 cement production lines at 22 facilities, the study revealed 211 lines at 25 factories, indicating that 29% of cement production was off the table.

Similarly, discrepancies were found in other sectors: the sugar sector had 300 production lines instead of 160 reported, the fertilizer sector had 79 production lines instead of 50, and the tobacco sector had 59 production lines instead of 30. These findings indicate significant underestimation by the FBR, affecting potential tax revenues.

There were also delays in the implementation of the tracking system. For example, it took seven months to sign the tripartite agreements necessary for the sugar sector and 29 months to introduce the system in the cement sector. These delays hampered the effectiveness of the system and contributed to persistent challenges in fully collecting tax owed from these sectors.

According to a report by The Express Tribune, an investigation led by former central bank governor Tariq Bajwa blamed the contractor, FBR and the industry for the botched implementation of the track and trace system.

Despite the five-year contract period, based on the assumption of sales of an average of 6 billion stamps per year, less than five billion stamps were sold in almost three years, partly due to implementation delays.

Additionally, the depreciation of the Pakistani rupee against the dollar further complicates matters, causing significant financial losses to the company involved as the contract price was set at a time when the exchange rate was much more favorable.