Full Implementation of 'Track & Trace System' in Pakistan's Tobacco Industry Expected by Year-End

In a significant development for the tobacco industry in Pakistan, the Federal Board of Revenue (FBR) is on track to fully implement its electronic monitoring track and trace system by the end of December 2023. This system is aimed at enhancing transparency and accountability in the industry while boosting government revenue collection.

According to reliable sources, two leading companies and one local firm have already successfully installed the automated track and trace system. Simultaneously, six local units have opted for a manual track and trace system, with data being readily available to the FBR.

To ensure comprehensive compliance, two more local units are in the process of acquiring auto-applicators to enable the installation of the automated system within their manufacturing facilities.

However, the Prime Minister's inquiry committee overseeing the track and trace system's implementation has raised concerns about the cost of applicator machines. Manufacturers are currently compelled to procure these machines from different vendors, each offering varying standards. To address this, recommendations have been made for the standardization of applicator machines, along with the suggestion that the government make these machines available to manufacturers on discounted or installment-based terms. This move aims to alleviate the financial burden on manufacturers, a key factor discouraging some from entering the track and trace system and signing the required agreement.

In a related development, one production line of each cement factory has initiated a trial run of the track and trace system. The implementation of this system is also progressing in the majority of tobacco manufacturing units, particularly those associated with large firms that contribute over 90% of tax revenue. However, smaller manufacturers have yet to fully embrace this technology.

Sources highlight the FBR's proactive engagement with local tobacco manufacturers across the country during the first quarter of the current fiscal year. This outreach has succeeded in bringing local tobacco players into the fold of the track and trace system, accelerating its rollout within the domestic tobacco industry.

Notably, the implementation of the track system has led to an increase in revenue collection from the tobacco sector, primarily through a significant rise in federal excise duty (FED) rates on cigarettes.

A similar positive revenue trend has been observed in the sugar sector following the implementation of the track and trace system, with collections reaching Rs26.03 billion from December 2021 to March 2022. Before the introduction of this system, revenue collection from the sugar sector stood at Rs19.9 billion.

Furthermore, the FBR is actively planning to introduce a "Sales Tracking System" before the next crushing season in the sugar sector. This initiative aims to ensure traceability of production from the source to the end user, potentially reducing tax evasion.

As part of strengthening compliance, the inquiry committee on track and trace system implementation has strongly recommended the installation of independent production monitoring devices at the manufacturing facilities of the cement, fertilizer, and sugar sectors. Such devices are seen as crucial to verify production, documentation, and tax payments, aligning with the unique identification markings (UIMs) to enhance transparency and revenue collection.