PM orders closure of non-tax-compliant factories

Establishes committee to probe reasons behind track and trace system's failure

ISLAMABAD:

Prime Minister Shehbaz Sharif on Monday directed to seal factories that are resisting the electronic monitoring of their production and sales lines, while seeking an action against the private contractors that could not effectively install the monitoring systems.

The premier has established a committee to investigate the reasons behind the track and trace system's failure, despite awarding an estimated Rs25 billion contract to a consortium consisting of M/s AJCL, MITAS, and Authentix, which largely remained non-functional.

The decision marks the seriousness of the government in ending tax evasion, which is going on in connivance with the tax machinery.

PM Shehbaz directed the formation of a committee to identify obstacles and those responsible for shortcomings in the track and trace system, as per a statement from the PM’s Office.

The committee's mandate includes submitting proposals for the implementation of an automatic tax system in factories and industries in the future.

The committee would identify the hurdles and people involved in tax theft within seven days, it added.

The PM instructed that the people from the FBR should not be involved in this fact-finding committee.

However, the task cannot be completed, as the FBR provides the secretariat support for the implementation of the track and trace system.

Shehbaz Sharif directed that all factories resisting the implementation of the track and trace system should be immediately sealed, as stated by the PM's office.

The prime minister was briefed that the track and trace system could not be fully operationalised in the sugar and cement sectors. The FBR also informed that the system was functioning in the tobacco and fertiliser sectors. However, counterfeit stamps have been discovered on cigarette packaging even within the tobacco sector.

The PM grilled the FBR for not taking the private contractor to task for its failure to effectively implement the electronic monitoring system.

The AJCL-led consortium had won the contract a few years ago on the back of the highest technical score, as its financial bid was 52% more 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 translated into an additional Rs8.5 billion payment to the bidder over the five-year contract period. The total estimated five-year contract value was Rs25 billion.

The five-year contract can be extended by another three years, taking the total additional financial impact to Rs13.5 billion. Installation of the track and trace system is one of the conditions that the IMF imposed on Pakistan under the last bailout package.

After awarding the license of the track and trace system last week, the FBR issued four sales tax general orders to monitor the 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.

In 2021, former prime minister Imran Khan had inaugurated the Track and Trace system for electronic monitoring of manufacturing and sales of products of important sectors consisting of tobacco, fertilisers, sugar and cement.

PM Sharif asked for an end to fake and unregistered cigarettes and their destruction. The country was facing economic issues and the mafia with their connivance had been inflicting damages to the national kitty, he added.

The prime minister also asked for seeking help from international institutions in the track and trace system.

Sharif said all the legal impediments in the enforcement of the track and trace system should be removed. The prime minister directed that the system should be enforced at all the production lines of cement factories, he summoned a comprehensive plan for digital strategy and an automated track and trace system.

The meeting was apprised in detail about the hurdles in the automated enactment of the track and trace system in the cement, sugar, fertiliser and tobacco sectors. The meeting was told that in 14 tobacco factories, the system was fully functional whereas 12 others had been sealed for non-compliance.

The system was fully functional in the fertilizers industry while it was facing problems in sugar and cement factories due to some technical issues which were being addressed.

Had the private contractor effectively implemented the system, no sugar bag would have moved out of a production site, factory premises or manufacturing plant without affixation of activated stamps and Unique Identification Markings?

In 2022, the FBR had claimed that the digital monitoring system of sugar production had been implemented over 79 sugar mills, having 151 production lines nationwide. It went on to claim that there was a double-digit growth in revenue collection from the sugar sector, attributing the increase due to price hikes to a newly installed system.