PWSMA pushes for digital tax fix

Calls for QR-Code mandate to curb billions in evasion, highlights FBR’s resistance

ISLAMABAD:

Plastic bag manufacturers have blamed the Federal Board of Revenue (FBR) for billions of rupees in annual tax evasion by major commodity producers due to malfunctioning production tracking systems.

Industry players have sought the intervention of the new Finance Minister, Muhammad Aurangzeb, who is also advocating end-to-end digitisation of the tax system to eliminate leakages.

The Polypropylene Woven Sack Manufacturers Association (PWSMA) has proposed mandatory printing of codes on plastic bags and code reader machines on production lines—a move it claims can increase the size of the formal economy by 20%.

The association has sought the intervention of the finance minister for mandatory printing of codes on plastic bags used by various manufacturing sectors. The Polypropylene Woven Sack Manufacturers Association Chairman, Iskandar Khan, has also written a letter to the finance minister.

The association has highlighted imperfections in the FBR’s track and trace system at a time when there is increased focus on digitising the FBR to discourage leakages.

On Thursday, Chairman FBR, Amjad Zubair Tiwana, briefed the International Monetary Fund (IMF) on various initiatives, including digital invoices and the track and trace system.

However, the FBR seems reluctant to adopt modern technologies and all its past initiatives have failed to yield the desired results, including the track and trace system. The tracking system had been installed to capture the real sales of sugar and tobacco manufacturers.

The FBR is now looking to fill three more positions of grade 20 to strengthen its Directorate General of Digital Invoicing. A day earlier, the finance minister did not endorse the FBR’s views about filling the 5,000 vacant positions and instead asked the FBR to consider whether new investment should be made in machinery digitisation.

The success of the track and trace system depends on the automation and transfer of production data online to FBR, as the automated system for affixing paper stamps on polypropylene sugar bags for online transmission to FBR has failed, said Khan.

He revealed that the FBR has allowed manual QR-Code paper stamp affixation, which encouraged the use of counterfeit paper stamps.

The association has requested adoption of mandatory printing of QR-Codes on polypropylene bags produced for all sectors, including sugar, cement, fertiliser, feed, wheat flour, rice, and chemicals.

It supports the finance minister’s proposal for issuing digital invoices for online data transfer to FBR, which it says will help plug leakages, along with installing QR-Code readers on production lines during packaging of industrial products.

The use of QR-Code technology will eliminate rampant tax evasion and significantly increase tax revenue for the government of Pakistan. Furthermore, the digitalisation of invoices has been agreed upon by Pakistan with the IMF.

Khan said the industry was encouraged by the finance minister’s views on the digitalisation of the tax system. Plastic bag manufacturers had proposed printing QR-Codes on polypropylene bags under the Track and Trace system in 2020.

Industry players said implementation of the proposed system will eliminate the highest levels of illicit trade, which consume 20% of Pakistan’s formal economy due to high taxes, ineffective enforcement, and poor documentation. Due to this, a cash-based economy thrives at the cost of billions of rupees in tax revenue, undermining the formal tax paying sector.

Khan complained that despite industry opposition, the FBR opted to affix imported QR-Code printed paper stamps for the sugar industry under the track and trace system, instead of printing QR-Codes on Polypropylene bags during their production at polypropylene factories, supported with digital invoices.

Many industries maintain two sets of accounts, one for tax purposes and the second showing real production and sales. FBR’s old plans to capture real incomes through tracking sales have not helped broaden the tax base and collection.

Published in The Express Tribune, March 15^th, 2024.

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