55% of major sector performance could not be tracked

ISLAMABAD:

The surprising revelation is that when the multi-billion track and trace contract was awarded three years ago, the Federal Board of Revenue (FBR) had no idea that 55% of production lines in four sectors were vulnerable to tax evasion. a survey conducted by the contractor after winning the order.

The government has awarded Authentix Inc a track and trace contract worth an estimated R25 billion to monitor the production of about 290 lines in the cement, fertilizer, sugar and tobacco sectors.

After winning the contract, the company determined that there were approximately 649 production lines, according to people who conducted the survey and saw its results. This shows that FBR was unaware of 55% of production in these key sectors, resulting in evasion of income tax, sales tax and federal excise duty.

The company conducted the study between December 2022 and January 2023; almost two years after the contract was awarded. His findings came after Prime Minister Shehbaz Sharif ordered disciplinary action against senior FBR officials for mishandling the track and trace contract. The FBR has asked contractors to ensure that the system is suitable for real-time monitoring of production lines at various locations to capture tax revenues from these sectors.

The Authentix consortium is responsible for the end-to-end installation and operation of a track and trace system connecting production plants and import stations to FBR’s central control room. In March 2021, the government awarded a five-year contract to track the production of cement, fertilizers, tobacco and sugar.

The FBR announced that the contractor will have to monitor 150 cement production lines at around 22 facilities. However, the study found that there were 25 factories with 211 production lines. FBR was unaware of 29% of production lines in the cement sector, which resulted in massive tax evasion.

The government announced another tender for the employment of a company that will sign a contract to monitor 50 production lines. However, its efforts may end up in court due to the exclusive rights granted to the Authentix Inc. consortium. In the case of sugar, the FBR announced that 80 factories have 160 production lines which the contractor will have to monitor.

However, the study showed that there are 82 sugar factories with 300 production lines. The FBR was apparently unaware of the 47% capacity of the sugar sector. In the fertilizer sector, FBR mentioned 15 factories with 50 production lines. However, the study showed that there were 79 production lines, which indicated a lack of supervision over 37% of the production capacity.

Similarly, in the tobacco sector, FBR mentioned 30 production lines, but the company found 59 lines, which is almost half the capacity under FBR’s radar. An unmonitored yield of 55% means that the products left the factory premises without excise stamps being applied.

The effectiveness of the agreement depended on the signing of tripartite agreements between FBR, the contractor and the factories. However, it took seven months to sign a tripartite agreement on the implementation of the tracking system in the sugar sector.

The delay was 13 months in the fertilizer sector, 6 months in the tobacco sector and 19 months in the cement sector. After signing the tripartite agreements, it took 11 months to implement the tracking system in the tobacco sector, which became effective in February 2022, according to official documents. It took seven months to start tracking sugar production and a record 29 months to implement the system in the cement sector, which was delayed until August last year.

Contrary to popular belief that the contractor was delaying the implementation of the track and trace system, FBR’s official correspondence with the All Pakistan Cement Manufacturers’ Association shows that FBR has extended the deadline by four months to April 30, 2024. The cement sector has received five demonstrations despite almost 100% accuracy.

Former central bank governor Tariq Bajwa headed the inquiry committee and blamed the contractor, FBR and the industry for the botched implementation of the track and trace system. Implementation in the fertilizer industry started in May 2022 with a delay of up to 14 months.

The government awarded the contract for five years assuming average sales of 6 billion stamps per year. However, company representatives claimed that less than five billion stamps had been sold so far over the last almost three years, and one of the reasons was the delayed signing and implementation of service contracts.

The company is also facing problems due to the depreciation of the rupee. The contract was awarded at a price of 157 rupees per dollar, but the rupee fell to 279 rupees per dollar. This results in a huge loss of profits due to the conversion of rupees into dollars before transfer abroad