FBR delays electronic monitoring of tobacco products

System can prevent revenue leakages estimated at Rs50 billion in FY17

ISLAMABAD: Despite sustaining a colossal loss of Rs50 billion due to tax evasion by the tobacco industry, the Federal Board of Revenue (FBR) is backpedalling on the decision of introducing electronic monitoring of tobacco products.

The report prepared to address procedural hurdles, which were delaying finalisation of the bidding process for introducing the new system, remained on the table of the top FBR management, said sources in the tax machinery.

They said the issue was not on the active list of the new FBR management and the matter may further linger on.



The decision to introduce electronic monitoring of tobacco products through the stamp, track and trace system at manufacturing and supply chain stages had been unanimously taken by the top FBR brass in March this year.

This was aimed at preventing revenue leakages due to under-reporting of production and sales and to ensure proper payment of taxes and duties on the manufacture and sale of tobacco products.

In May this year, the FBR invited bids for the electronic monitoring of tobacco products. The bids were for supply, installation and operation of a system for five years.

A pre-bid conference was held in June in the FBR headquarters, in which the prospective bidders pointed out some anomalies in the floated Request for Proposal (RFP) document.

A team of FBR experts agreed to resolve the issue by modifying the RFP document, said the sources. However, no modification has been made so far and the last date for submission of technical and financial proposals is going to lapse on August 8.

The original date for submitting the bids was July 8, which the FBR extended for one month to seek time to introduce the changes.

Sources said FBR Chairman Tariq Pasha took a presentation last Friday, but did not take decision. They said a few Grade-20 and Grade-21 officers of the FBR were not in favour of the monitoring system and were creating hurdles.

FBR spokesman Dr Mohammad Iqbal did not respond to queries about delay in implementation of the new system.

On Wednesday, the FBR chairman informed the Senate Standing Committee on Finance that the government sustained about Rs50 billion worth of tax losses in fiscal year 2016-17 due to evasion by the tobacco sector.

In the year, net tax collection from the sector stood at Rs70 billion excluding advances taken from the sector for meeting the annual tax collection target.

In response to the FBR’s RFP, leading solution providers from Europe, the US and Australia offered their services. These were De La Rue - the UK, SICPA SA - Switzerland, Authentix - the UK, SURYS - Germany, Ashton Potter - USA, Opsec Security - USA and YPB Systems - Australia.

What is the proposed system?

The FBR wanted to introduce a machine-readable and scan-able tax stamp with unique features for tracking and tracing production. This system is in line with the World Health Organisation Protocol on Tobacco Control that is aimed at curbing tax evasion.

The system will be capable of capturing real production data of tobacco products, which will stop companies from underreporting their production. This system will also easily distinguish between smuggled and duty-paid tobacco products. This will minimise human interaction with the manufacturers, which can curb corrupt practices in the FBR.

The pros and cons of the proposed track and trace system versus stamping were discussed by the Tax Reforms Implementation Committee, headed by the then special assistant to prime minister on revenue.



It was revealed in the meeting that the tobacco industry was inclined towards adopting stamping as a production monitoring mechanism and was not in favour of electronic monitoring, according to minutes of the meeting.

Published in The Express Tribune, August 4^th, 2017.

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