FBR inefficiencies put multimillion-dollar FDI at risk

ISLAMABAD: The bureaucratic hurdles of the Federal Board of Revenue (FBR) have put Foreign Direct Investment (FDI) worth tens of millions of dollars at stake.

Sources said that the licensee, comprising Authentix Inc., AJCL Private Limited, and MITAS Ltd, a consortium awarded the project to implement the Track and Trace System (TTS) in four sectors: Tobacco, Cement, Sugar, and Fertilizer. However, the bureaucratic hurdles of the FBR have jeopardised the game-changing Track and Trace System (TTS).

Not only has the program not been fully implemented, thereby not achieving the desired results for the Government of Pakistan (GoP) and creating hurdles in discussions with multilateral lenders who want to improve tax digitisation, but it has also put FDI worth tens of millions of dollars at stake, sources added.

Recently, the Tariq Bajwa-led inquiry committee also came down hard on the FBR for their incompetence in the implementation of TTS.

The Bajwa-led committee report states that the FBR was supposed to complete the project by February 2022, but litigation and court stays on implementation, bureaucratic inefficiencies, and incompetence of FBR officials delayed the implementation of TTS.

The report also states that FBR’s IREN, an enforcement unit consisting of 87 staff members, virtually has no physical presence on the ground, due to which illicit and smuggled cigarettes are openly available in the market.

The report disclosed that the number of production sites and lines in notified sectors, as given in the IFL and the SDA, were subsequently found to be fewer than actually on the ground, which illustrates the extent of the unawareness of FBR regarding the production landscape in the country.

For instance, the production lines were over 200 in the cement industry whereas the FBR mentioned just 50 in tendered documents, showing an increase in production lines by a factor of four in the cement sector alone.

According to sources, the licensee has put up change orders in line with the provisions in the contract, pertaining to the additional cost associated with outfitting these additional lines, which are yet to be addressed by the FBR for two years.

Meanwhile, the FBR also directed the licensee to install the system on one production line each in the cement factory instead of rolling it out across the complete cement sector. Commenting on this matter, the Tariq Bajwa committee stated that the solution’s efficiency is severely eroded by the continued operations of those production lines where the system is not implemented, and was of the view that the FBR may direct the licensee to implement TTS across the complete cement sector.

“Contractual lapses on the FBR’s side weakened the project governance and oversight and resulted in an inordinate delay in the resolution of outstanding issues between the licensee and the FBR. The committee believes that despite the fact that the current technology solution has not achieved full results due to incomplete implementation, termination of the contract at this stage will trigger litigation and lead to prolonged delays in the implementation of the TTS, thereby resulting in revenue slippages and evasion, especially considering that the FBR has not developed any in-house capacity and fallback plan to take over the system in case of termination of the contract,” the report said.

It is pertinent to note that the FBR has acknowledged the achievement of TTS on various forums and the crucial role that it has played in bringing overall transparency in the production data, making it easier to digitally monitor production, and reducing suppression of production, which minimises evasion.

However, it is imperative that the revenue authorities ensure the complete rollout across the existing sectors, expand it to other sectors of the economy, and enhance enforcement practices to avail the actual benefits of TTS and enhance tax revenue generation in the long run.

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