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Saturday July 20, 2024

Much-vaunted track, trace system didn't yield results, probe finds

Committee reveals manual application of tax stamps found with small tobacco manufacturers, which negates purpose of Track, Trace System

By Mehtab Haider
September 06, 2023
In this image, Sheikhoo Sugar Mills can be seen with its trucks loaded with sugar cane. — Sheikhoo Sugar Mills website
In this image, Sheikhoo Sugar Mills can be seen with its trucks loaded with sugar cane. — Sheikhoo Sugar Mills website

ISLAMABAD: A high-powered inquiry committee constituted by the prime minister for implementation of the much-hyped Track and Trace System has found that it failed to give the desired results for all the four major sectors — sugar, cement, fertilizer, and tobacco — despite utilizing multimillion rupees.

Even some top officials conceded that the old technology was installed through the TTS system after which counterfeit stamps were found, exposing the technology’s failure to net the tax dodgers. The inquiry committee was constituted by former PM Shehbaz Sharif.

On the other hand, the FBR failed to plug tax leakages despite spending multimillion rupees, which was borne by the sector but it jacked up the cost of doing business in the country.

The inquiry committee revealed that manual application of tax stamps had been found with small tobacco manufacturers, which negates the entire purpose of Track and Trace System.

The prime minister’s inquiry committee report on implementation of the Track and Trace System (TTS) found that in the case of sugar, all 71 sugar mills were declared non-compliant and termed that the TTS solution was not compatible with local conditions due to frequent reel breakage and stamps being non-adhesive on sacks.

The installed factory machinery being old in nature does not support this implementation/automation until modifications are carried out. There is a high cost of applicator/tax stamp machines.

In the case of tobacco, the inquiry committee found that there were initially stay orders, so till recently there were three compliant companies and 19 were non-compliant. Now the FBR has signed MoUs with the local manufacturers. However, the report stated that there was resistance from the industry due to the high price of tax stamps/applicator machines.

It further found that the tobacco’s local manufacturers had machines installed from 1960, which were not able to sustain auto applicator technology.

For fertilizer sector, there are 12 compliant companies and zero non-compliant but the inquiry committee found that the auto applicators installed affected the efficiency of TTS system due to humidity.

For the cement sector, there is zero compliant company while 24 are non-compliant. The inquiry committee found that the TTS solution was not compatible with local conditions due to factories environment being very dusty, which results in reel breakage and stamps becoming non-adhesive. There is also high cost of TTS system.

The awarded contractual framework was reviewed by the inquiry committee and it was observed that an approach of “one solutions fits all sectors” was applied. However, this approach affected the robustness aspect as each sector has different processes and mechanism; therefore, it requires customized solution that should be applied for each sector.

Furthermore, it was also analyzed that global tax stamps have only been used within the tobacco sector and no such global level approach was found where this mechanism of stamp was applied for other sectors.

The committee had a meeting with the consortium and members of the committee visited factories from sectors, including tobacco and fertilizer. However, the committee members could not visit sugar factories whereas no applicator machinery is installed in the cement sector.

The licensee did not carry out proper due diligence, especially understanding of the environment in sugar, fertilizer and cement so that the solution could have been deployed in customized manner in line with local conditions. Besides, no study was done by the licensee to understand the dynamics of small tobacco manufacturers using very old machinery, which is not compatible with the existing auto application.

The implementation in fertilizer sector has technical limitations due to weather conditions in Pakistan. The licensee was required to provide secure and non-removable (tamper evident) tax stamps; however, the sugar and fertilizer industries pointed out that the tax stamps were easily removable from the bags during the process of loading and unloading of goods.

Implementation on cement has not been done due to delays on the part of manufacturers but the cement industry is of the view that the system is not compatible with the dusty environment and high temperature, resulting in frequent reel breakages and non-adhesiveness of tax stamps on cement bags.

The provided apps for reading the UIM’s requires use of high-end mobile phone with a high resolution camera, even then in certain cases the UIM through app are found to be non-readable to no results found. This reflects deficiency within the developed app and requires rectification in order to make the app more responsive.

The committee observed that there lies a confusion between the FBR and industry on who is responsible for purchase of applicator machinery, which requires review and legal opinion to resolve this confusion. The UIMs being applied on products contain 21 alpha-numeric characteristics, which are only readable via the available app.

The committee found that tax stamps are being imported from abroad and no option is explored by the licensee to localize it.

After visiting different factories, it was observed that each sector had different environment dynamics and UIMs sticker option could not be successful in each sector. In fertilizer sector, there is a dire issue of reel breakage as applicator timer is not synchronized with the conveyer belt; therefore, it affects the overall efficiency of the sector.

It is observed that the placement of sacks/bags on conveyer belt is not standardized, which is the root cause of no read applicator issue. Wastage of factories is not being reconciled via automated mechanism and requires up to 60 days where the FBR officials have to do an onsite visit and report the same to the headquarter for approval. This reporter sent out questions to the FBR for getting their viewpoint but got no reply.