Cigarette sector may not be able to implement track-and-trace system

ISLAMABAD: The documented cigarette sector may not be able to fully implement the track and trace for clearance of all brands of cigarette packs with tax stamps by the extended deadline of May 20, 2020.

This was disclosed by an official of a multinational cigarette manufacturing company during an interaction on tobacco taxation with the media here on Wednesday.

The official informed that the FBR will not allow the cigarette manufacturers to remove tobacco products from the production site, factory premises or manufacturing plants without affixation of tax stamps/Unique Identification Marking (UIMs) from the extended deadline of May 20, 2020.

Previously, the deadline was April 30, 2022, which has now been extended up to May 20, 2022. However, track and trace is in the testing phase of our single manufacturing unit of the company. There is a possibility that the deadline may be further extended as the unit may not be in a position to clear all cigarette packs with tax stamps by May 20, 2022, the official said.

The provisions of Section 40C (2) of the Sales Tax Act, 1990 read with Rule 150ZF of the Sales Tax Rules, 2006 mandate FBR to notify the date for the implementation of electronic monitoring of production and sales of goods in the manner prescribed in the law on all manufacturing sites of notified sectors.

The track and trace system involves the implementation of a robust, nationwide electronic monitoring system of production volumes by affixation of more than five billion tax stamps on various products to shadow their flow throughout the supply chain.

According to experts, the track and trace system makes it easier for tax authorities to monitor product production and sales, as well as empower consumers. Consumers can verify that the product they bought was legally sold by paying tax by scanning the tax stamp and special code affixed to the product through the mobile application.

The implementation of the long-awaited TTS is a result of the strong political will of former Prime Minister and special efforts of his economic team but they need to ensure effective enforcement of the system else its impact will be the same as previous policies

The government is in the final process of installation of the track and trace system at23 functional cigarette manufacturing units in Pakistan and Azad Jammu & Kashmir.

The installation of the system has been almost completed at the manufacturing premises of two multinational companies.

He informed that the two tobacco companies, with a market share of around 60 per cent contribute 98 per cent of the tobacco tax collection. The other 50 tobacco companies contribute only two per cent to the national exchequer, which is said to have an estimated loss of Rs80 billion.

The Illicit cigarette in Pakistan is available at price points of Rs20-35, which is less than the government-mandated minimum price of Rs62.76.

Pakistan has only 10 GLT plants and all the tobacco produced in the country. If all taxes are applied at the stage of green leaf threshing, the entire tobacco industry will come under the tax net, he said.

He further said that the government’s efforts for creating checks and balances for goods including cigarettes coming in illegally from the Azad Jammu & Kashmir (AJK) trade route to ensure proper taxation of goods.

Only in the tobacco sector, the market share of illicit cigarette sales has reached40 per cent, costing the government more than Rs80 billion annually in taxes alone.

The remaining small units in Mardan and the KPK are individually signing the said tripartite agreements with the FBR. Tax authorities of Azad Kashmir have also agreed to implement the track and trace system at the units operating within the jurisdiction of the AJK.

The FBR will confiscate all manufactured cigarettes without tax stamps coming from AJK to the tariff areas of the rest of Pakistan.

The tobacco industry of Pakistan believes that effective enforcement of track and trace system to counter tax evasion is vital, or else its impact will be the same as previous policies.

The consumers of legal cigarettes will be unable to absorb multiple taxes and price increases and will shift their consumption to cheap illicit cigarettes making the task of enforcement against these illicit operators increasingly difficult. Any increase in taxes will result in an increase in illicit activity - if FED increases then down trading will occur and more legal volumes will move to illicit so it is a loss, both the GOP and the private sector, the official added.

Copyright Business Recorder, 2022