The inquiry committee on the implementation of the Track and Trace system has recommended the installation of independent production monitoring devices at the manufacturing premises of cement, fertilizer, and sugar sectors for production monitoring.
The inquiry committee on the implementation of the Track and Trace system constituted by former Prime Minister Shehbaz Sharif has submitted detailed recommendations on the revamping of the said system in the cigarettes, sugar, cement, and fertilizer sectors.
The FBR’s report on the implementation of the Track and Trace system recommended that in cement, fertilizer, and sugar sectors the issue is not of spurious or smuggled products. The issue is of non-tax paid products being sold.
To curb this, production monitoring is critically important in these sectors. It is recommended that independent production monitoring devices (such as sensors at hoppers) be installed to have a cross-check with Unique identification Markings (UIMs) to ensure that full production is documented and tax-paid.
It was observed that there lies a confusion between the Federal Board of Revenue (FBR) and industry on who is responsible for purchasing of the applicator machinery which requires review and legal opinion to resolve this confusion, the report said.
The UIMs being applied on products contain 21 alpha-numeric characters, which are only readable via the available app. The manual application of tax stamps has been observed in small tobacco manufacturers which negates the entire purpose of the Track & Trace System. The report said that the tax stamps/stickers are being imported from abroad, and there is no option explored by the licensee to localize them.
After visiting of different factories, it is observed that each sector has different environmental dynamics and the UIM sticker option cannot be successful in each sector. In the fertilizer sector, there is a dire issue of reel breakage as the applicator timer is not in sync with the conveyor belt, therefore it affects the overall efficiency of the sector.
It was observed that the placement of sacks/bags on conveyor belts is not standardized which is the root cause for no-read applicator issues.
The report said that the wastage at factories is not being reconciled via an automated mechanism and requires up to 60 days where FBR officials have to do an on-site visit and report the same to Headquarters for approvals.
The following are recommendations of the committee on the implementation of the Track and Trace system that may be considered and implemented:
i) There is a major skill level gap observed within the current team supervising the project. It is recommended that an independent project office be established and FBR should hire a project team from the private sector having specialized skills and experience of at least 5 years or more in this field and have worked on modem ICT technologies etc.
The report noted that the applicator machines are very costly and manufacturers are forced to buy such machines from different vendors, where each vendor machines offers different standards. Therefore, FBR and licensee should standardize applicator machines, etc. and GoP should offer such machines on a discounted or installment basis so it does not create a burden on the manufacturer which is one of the major reasons for many manufacturers not coming within the TTS ambit and resisting to sign the TPA.
The FBR should also install on-site cameras with a backup recording mechanism whereby the FBR can monitor each line remotely to keep a stronger enforcement action.
The licensee should be asked to develop SMS based reporting mechanism of consolidated hourly statistics for each manufacturer and these hourly reports should be transmitted to FBR-designated official numbers in HQ as well as on the field so they can carry out enforcement actions based on this data. Furthermore, business intelligence should be built within the FBR-provided dashboard, where the system should automatically analyze each hour, day, and month of production and if there are variations observed it should trigger concerned FBR teams via SMS to carry out random inspections.
The licensee should upgrade their systems so that in case of no-reads of UIM an auto alarm should be generated at the location of the licensee as well as to the FBR dashboard so they can rectify the same at the spot. The licensee should also study the timer for each conveyor belt and place marker so placement of bags should be done within the marker limits to mitigate the no-read issues being faced.
The FBR, the licensee should carry out best practices being adopted by different factories from each sector, consolidate the same for each sector, and implement the best practices at par for that specific sector in consultation with the industry.
The on-site inspection mechanism is purely manual, there is a need to digitize the same mechanism and provide FBR with tools e.g. Scanners, RFID guns, etc. that allow them to scan the production which should be integrated with the FBR dashboard so near real-time field results are available within FBR dashboard.
The committee has analyzed best international practices from similar markets as well as advance markets and the following is suggested
It was determined that the application of tax stamps within the tobacco sector is in line with best international practice, where the same mechanism is being followed both in similar markets (Bangladesh, Turkey, Ghana, Kenya, etc.) and advanced markets (European Union).
However, for cement, sugar, and fertilizer sectors no evidence of tax stamps being used was found and this is the first of its kind of implementation being done in Pakistan. Therefore, as recommended in the way forward above, this should be studied and a customized local solution should be implemented that works as per each sector’s conditions, within 180 days.
The report concluded that the Track and Trace System in place is far from perfect. However, it has taken FBR 10-15 years to implement this concept. If derailed it will take years to put it back on track. The need is to make improvements within the existing systems based on recommendations.