Manufacturing premises of cement, fertiliser, sugar sectors: Installation of independent production monitoring devices suggested

ISLAMABAD: The inquiry committee on implementation of Track and Trace System (TTS) has strongly recommended installation of independent production monitoring devices at the manufacturing premises of cement, fertiliser and sugar sectors.

The inquiry committee on implementation of Track and Trace System was constituted by former prime minister Shehbaz Sharif, which has submitted detailed recommendations on the revamping of the said system in cigarettes, sugar, cement and fertiliser sectors.

The FBR’s new report on the implementation of the Track and Trace System recommended that the issue is not of spurious or smuggled products in cement, fertiliser and sugar sectors, but the non-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 the Unique Identification Markings (UIMs) to ensure that full production is documented and tax-paid.

The committee has observed that there is confusion between the FBR and industry on the responsibility for purchasing of the applicator machinery which requires review and legal opinion to resolve this confusion.

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 Track & Trace System.

The report said that the tax stamps/stickers are being imported from abroad, there is no option explored by the licensee to localize it.

After visiting of different factories, the committee found that each sector has different environmental dynamics and UIM sticker option cannot be successful on each sector. In fertiliser sector, there is a dire issue of reel breakage as applicator timer is not in sync with the conveyor belt, therefore it affects the overall efficiency of the sector.

It was observed that placement of sacks/bags on conveyor belts is not standardized which is root cause for no-read applicator issues.

The report said that the wastage at factories is not being reconciled via 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.

Following are the key recommendations of the committee on the implementation of Track and Trace System that may be considered and implemented:

The committee has recommended revamping of the entire existing process and after the due deliberations the existing mechanism should be customized for each sector. Customization may include using of other UIM identifier options e.g. Bar Codes or a localized Digital-markers etc. that are able to contain unique UIM information within each code, for each sector based on the environmental and existing process and implement a customized solution to make it successful. This should be done in consultation with each sector industry.

The app-based solution for verification is limited as it requires using a high-end smart phone that offers a good camera scanning mechanism.

The FBR should run awareness campaigns via bulk SMS broadcast, social media video tutorials, digital and print media should to educate general public on importance of buying product using UIM labels thereby creating awareness and buy-in of general public as well to create deterrence from replica, informally imported products.

The reporting dashboard provided to the FBR offers very limited KPI’s, limited visibility and does not offer any business intelligence that can be helpful for carrying out structured enforcement actions by FBR.

It is recommended that there should be complete revamp of the existing dash board provided by M/s Authentix which is very limited and does not provide geographical based insight, no business intelligence reports or analytics that can help FBR make more educated decision making and carry out targeted enforcement actions based on the analytics provided through detailed dashboard.

According to the report, there is a need for the formulation of a permanent over-sight committee to monitor the entire implementation of these recommendations. The committee should include technical experts from government and private sectors.

The committee has recommended mandatory brand licensing built within the Track and Trace System online portal where in accordance with the STGO No 7 of 2021 all existing and new manufacturers of specified sectors are required to register their brand of each product with the FBR before selling the same in the market.

The registration of brands with the FBR would help track the production and sales of manufacturers and more importantly curtail the sale of illegal tax evaded brands. All the brands applied and allowed by the FBR be published on the FBR website for general public awareness.

If any unregistered brand’s product is found in the market, the Inland Revenue Enforcement Network (IREN) may have the authority to confiscate all of the available stock in the market. This enforcement should be immediately implemented and analytics provided within the TTS portal should be used for carrying out targeted enforcement actions.

Furthermore, the excise and sales tax collected should be against each brand to estimate the market size and revenue collection more accurately. Brand licensing will be an effective tool to ensure that as well.

The FBR should introduce digital Invoicing mechanism or existing mechanism be integrated within TTS. The brand wise tax invoice of all products especially within tobacco sector should be generated.

Besides, stock transport advise, sales-cum transport invoice shall be mandatory and generated via TTS online portal. This e-invoicing integrated within the TTS will improve transparency and reporting of tax invoices and can lead to focused enforcement action against the evaders.

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, the FBR and licensee should standardize applicator machines etc. and the government should offer such machines on discounted or installment basis so it does not create burden on manufacturer which is one of the major reasons for many manufacturers not coming within the TTS ambit and resisting to sign the agreement.

The FBR should also install on-site cameras with backup recording mechanism whereby 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 field so they can carry out enforcement actions based on this data.

Furthermore, business intelligence should be built within the FBR provided dashboard, where system should automatically analyze each hour, day, month 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 licensee as well as to 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, licensee should carry out best practices being adopted by different factories from each sector and 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 need to digitize the same mechanism and provide FBR with tools e.g. Scanners, RFID guns etc. that allows them to scan the production which should be integrated with FBR dashboard so near real-time field results are available within the FBR dashboard.

The committee has analyzed best international practices from similar markets as well advance markets. It was determined that application of tax stamps within tobacco sector is in line with best international practice, where same mechanism is being followed both in similar markets (Bangladesh, Turkey, Ghana, Kenya etc.) and advance markets (European Union).

The report pointed out that for cement, sugar and fertiliser sectors, no evidence of tax stamps being used was found and this is first of its kind of implementation being done in Pakistan. This should be studied and a customized local solution should be implemented that works as per each sector conditions, within 180 days.

The inquiry committee 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 and if derailed it will take years to put it back on track.

The need is to make improvements within the existing systems on the basis of recommendations. While the day to day tasks to ensure the implementation, the recommendations will be of the Member IR operations and the Project Director Track & Trace, FBR, it is proposed that a high-powered committee consisting of technical experts from both Government & Private sector may be setup to ensure that this transition is achieved within 180 days, the FBR report added.

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