SHC suspends FBR’s Rs25b deal

Contract was awarded to monitor production of four tax evasion prone sectors

ISLAMABAD:

The Sindh High Court (SHC) has suspended the award of Rs25 billion worth contract, which the federal government gave last week to monitor production of four tax evasion prone sectors as part of a condition of the International Monetary Fund (IMF).

The court granted stay order after the bidders raised serious questions over the manner the Federal Board of Revenue (FBR) handled the process and allegedly compromised transparency in award of the five-year deal worth minimum Rs25 billion.

“Till the next date of hearing, defendants are restrained from taking any step towards implementing or processing with the contract subject matter of this suit and license awarded to the defendant No 5 under the IFL (instruction for license) for providing track and trace system,” according to a single-judge interim order.

Read: IMF grants over Rs200b spending waiver to fight Covid

The court has issued notices to the FBR and the federal government, fixing the case hearing for April 5.

A Switzerland-based company, SICPA SA had filed the suit in SHC, seeking termination of track and trace contract awarded to AJCL private limited by the FBR. The Grievances Redressal Committee had rejected the objections raised by SICPA and other bidders.

SICPA has requested the court that the award of the contract should be set aside and the whole bidding process be carried out afresh. Another bidder, Reliance IT Solutions Limited has also filed writ petition in Islamabad High Court and the case has been fixed for hearing on Monday.

The Public Procurement Regulatory Authority (PPRA) had also restrained the FBR from awarding the contract but withdrew its instructions within 24 hours. The bidders had raised serious objections over the manner the FBR handled the bidding process and the court’s intervention was expected in the matter.

The government has thrice attempted to curb tax evasion in sectors of tobacco, cement, fertiliser and sugar. In its latest attempt, it opened the bids on February 1 that showed AJCL Private Limited as the leading contender. The FBR and AJCL have already signed the deal to monitor productions from July. AJCL won the contract on back of highest technical score, as its financial bid was 52% expensive than the lowest bid.

The price difference between the lowest financial bid of Rs499 per thousand stamps and the second highest bid offered by the consortium of AJCL Private Limited was Rs259 per thousand stamps. This translates into an additional Rs8.5 billion payment to the bidder over the five-year contract period.

The five-year contract can be extended by another three years, taking total additional financial impact to Rs13.5 billion. Installation of the track and trace system is one of the over two-and-a-half dozen conditions that the IMF has imposed on Pakistan for the revival of the $6 billion deal.

After awarding license of the track and trace system last week, the FBR had issued four sales tax general orders to monitor production of tobacco, sugar, cement and fertiliser. But after SHC’s decision, the whole process will be stopped until the court vacates the stay order.

SICPA has made a plea that the winning party was not capable of ensuring that the solutions it offered could effectively monitor in real and no real time the 50 production lines of the cigarette sector, 50 of cement, 160 of sugar and 30 production lines of the cement sector.

Another condition of the license was that the bidder should not have conflict of interest with the four industrial sectors that it would monitor to ensure maximum tax collection as per the laws. SICPA has alleged that AJCL was ineligible to secure the contract as it is involved in the import and export of ethanol, cement, sugar and fertiliser.

Read more: IMF deal envisages Rs700b taxes in next fiscal

The plaintiff also pleaded that the FBR did not provide an opportunity to the parties to furnish samples of unique identification marking. These unique tax stamps, which have to be affixed to the products in order to trace them, are the most important feature of the entire track and trace system. It has been pleaded that giving scores without physically examining them defeated the entire purpose of the bidding process.

SICPA has also raised the issue of hiring a consultant for the award of the track and trace system without the bidding process in violation of PPRA rules. The FBR made “every possible effort to accommodate and facilitate defendant No 5 (the winning party) in the bidding process since its inception” and the sole purpose of the process was to “award the license to a pre-determined party to the exclusion of others”, according to the petitioner.

SICPA’s lawyer argued that the FBR also did not follow PPRA’s instructions to conduct an administrative review of the process before awarding the contract. Reliance IT Solutions has also filed a petition in the Islamabad High Court under article 199 of the constitution. Reliance has raised questions over the evaluation process in award of the contract. It also sought disqualification of the winning party on the grounds that the winner did not fully disclose the conflict of interest. Reliance also objected to the FBR’s decision of not examining the stamps and gave marks without performing the task.

“The respondent No 8’s financial bid was far in excess of the other bidders, that if such a bid is accepted, grave loss would be caused to the national exchequer,” according to the petitioner.

Published in The Express Tribune, March 14^th, 2021.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.