Track-and-trace system not implemented: Illegal cigarette trade continues to flourish

KARACHI: The volume of illegal cigarette trade continues to surge as the Federal Board of Revenue’s (FBR) track-and-trace system is not fully implemented in the cigarette industry, said industry sources.

They said the FBR has implemented a track-and-trace system for the four leading sectors including cigarette, sugar, cement and fertilizer industry with a view to enhance tax revenue, reduce counterfeiting and prevent the smuggling of illicit goods. The track-and-trace system enables the FBR to track the goods throughout the supply chain.

In the cigarette industry, out of over 40 companies, only three companies have implemented the track-and-trace system, while, remaining cigarette manufacturing companies have not yet been brought under the supervision of this system, which became operational from 1st July 2022.

Industry sources said that in the tobacco sector, the delay in the track-and-trace system has resulted in huge revenue losses to the government.

The objectives of this system cannot be achieved without its uniform application across the entire industry, they added.

The volume of illegal cigarette trade has already reached 40 percent in the country, which is the highest proportion in the Asian region, they said.

Recently, FBR has already informed the Public Accounts Committee that the government could collect huge revenue by countering tax evasion in the tobacco sector through implementation of track-and-trace system.

As per FBR statistics, two tobacco companies paid tax of Rs.157 billion while the other 20 companies together paid only Rs 3 billion.

Additional taxes of Rs 60 billion can be collected from the sale of cigarettes, which can increase the value of taxes received from the cigarette industry to Rs 220 billion and this can be achieved with implementation of track-and-trace system.

Industry sources said that more than 50 percent cigarette manufacturing companies in Pakistan do not even pay nominal taxes and the burden of all taxes on cigarettes is borne by the organized and legal industry.

Recently, during the announcement of the Kissan Package for the agriculture sector, Prime Minister Shehbaz Sharif has also expressed his determination to prevent annual losses, which are over Rs. 100 billion to the economy from large-scale illegal trade in the unregulated tobacco sector.

He also completely rejected the possibility of giving relief to the unregulated tobacco sector.

Moreover, sources said that the prime minister has also directed the FBR to present fresh statistics on the damage caused to the economy by illegal tobacco trade.

Copyright Business Recorder, 2022