Islamabad:
In a startling revelation, the Federal Board of Revenue (FBR) had no idea about 55% of production lines in four industries that were prone to tax evasion at the time of awarding a multi-billion rupee contract three years ago, according to a survey it conducted the contractor after winning the contract.
The government had awarded a Rs25 billion contract to Authentix Inc to monitor the production of about 290 lines of cement, fertilizers, sugar and tobacco.
After winning the contract, the company found that there were about 649 production lines, according to people who conducted the survey and saw its results. This shows that FBR was ignoring 55% of the production in these key sectors, which results in evasion of income tax, sales tax and federal excise duties.
The company conducted the survey from December 2022 to January 2023. almost two years after the contract was awarded. His findings came as Prime Minister Shehbaz Sharif ordered disciplinary action against senior FBR officers for mismanaging the track and trace contract. The FBR had asked the contractors to ensure that the system was suitable for real-time monitoring of production lines at various locations, with a view to extracting tax revenue from these sectors.
The Authentix consortium is responsible for the installation and operation of the end-to-end monitoring and tracking system that connects the manufacturing facilities and import stations to the FBR’s central control room. The government awarded the contract in March 2021 for five years to monitor cement, fertilizer, tobacco and sugar production.
FBR had advertised that in about 22 plants, the contractor would have to monitor 150 cement production lines. However, the investigation revealed that there were 25 factories with 211 production lines. FBR was ignoring 29% of the production lines in the cement sector, which caused massive tax evasion.
The government has announced another tender to hire a company to award a contract to monitor 50 production lines. However, its efforts may end up in the courts because of the exclusive rights that have been given to the Authentix Inc. consortium. In the case of sugar, FBR advertised that 80 factories had 160 production lines that the contractor would have to monitor.
But research revealed that there were 82 sugar mills with 300 production lines. FBR apparently ignored 47% of the production capacity of the sugar sector. In the fertilizer sector, FBR reported 15 factories with 50 production lines. However, the investigation showed that there were 79 production lines, showing the lack of supervision over 37% of the production capacity.
Similarly, in tobacco, FBR reported 30 production lines, but the company found 59 lines, almost half the capacity from FBR’s radar. Uncontrolled capacity of 55% means that the products left the factory premises without the application of tax stamps.
The effectiveness of the agreement depends on the signing of tripartite agreements between the FBR, the contractor and the factories. However, it took seven months to sign the tripartite agreement to implement the monitoring system in the sugar sector.
In the fertilizer sector there was a delay of 13 months, in tobacco six months and in the cement sector 19 months. After the tripartite agreements were signed, it took 11 months to implement the tobacco monitoring system, which came into effect in February 2022, official documents showed. It took seven months to start monitoring sugar production and a record 29 months to implement the system in the cement sector, which was delayed to August last year.
Contrary to the perception that the contractor delayed the implementation of the rail and track system, an official correspondence of the FBR with the Pakistan Cement Manufacturers Association showed that the FBR gave an extension of four months till April 30, 2024. The cement sector got five demonstrations despite near 100% accuracy, according to industry insiders.
Former central bank governor Tariq Bajwa headed the inquiry committee and blamed the contractor, the FBR and the industry for failing to implement the monitoring and tracking system. Implementation in the fertilizer sector started in May 2022 with a delay of up to 14 months.
The government had awarded the contract for five years on the assumption that sales average 6 billion stamps annually. However, company officials claimed that less than five billion stamps had been sold so far in the last nearly three years and one of the reasons was the late signing and implementation of service agreements.
The company is also facing problems due to the erosion of the value of the rupee. The contract was quoted at Rs 157 to a dollar, but the rupee has fallen to Rs 279 to the dollar. This causes huge loss of profit due to conversion of rupees to dollars before transfer abroad
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