FBR unaware of 55% production lines in key sectors

Over half of production lines in critical tax evasion-prone sectors were unknown to the bureau, impacting potential tax collections

A recent report by The Express Tribune has highlighted significant gaps in the Federal Board of Revenue’s (FBR) oversight of key economic sectors, with the FBR having been unaware of 55% of production lines in the cement, fertilizer, sugar, and tobacco industries at the time it awarded a multibillion-rupee track and trace contract.

This contract, worth an estimated Rs25 billion, was awarded to Authentix Inc three years ago to enhance monitoring and prevent tax evasion.

Following the contract award, Authentix conducted a survey from December 2022 to January 2023, which uncovered that there were approximately 649 production lines across these sectors, far more than the 290 lines originally identified by the FBR. This discrepancy has raised serious concerns about the potential for widespread tax evasion.

Prime Minister Shehbaz Sharif has ordered disciplinary action against senior FBR officers for their mishandling of the track and trace contract, which was intended to ensure real-time monitoring of production lines to capture tax revenues more effectively.

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

Despite initial claims of covering 150 cement production lines across 22 premises, the survey revealed 211 lines in 25 factories, indicating that 29% of cement production was off the radar.

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

The implementation of the tracking system has also faced delays. For example, the tripartite agreements necessary for the sugar sector took seven months to sign, and it was 29 months before the system was applied in the cement sector. These delays have hindered the effectiveness of the system and contributed to the ongoing challenges in fully capturing tax dues from these sectors.

According to The Express Tribune’s report, an inquiry led by former central bank governor Tariq Bajwa placed blame on the contractor, the FBR, and the industry for the unsuccessful implementation of the track and trace system.

Despite the contract’s five-year term based on the assumption of selling an average of 6 billion stamps annually, less than five billion stamps have been sold in nearly three years, partly due to these implementation delays.

Additionally, the depreciation of the Pakistani rupee against the dollar has further complicated matters, causing significant financial losses for the company involved, as the contract price was set when the exchange rate was much more favorable.

Monitoring Desk
Monitoring Desk
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