Is TTS game changer against tax evasion or another missed opportunity?

Pakistan’s economic stability hinges significantly on its ability to curb tax evasion and illicit trade. One of the initiatives in this regard is the Federal Board of Revenue’s (FBR’s) Track and Trace System (TTS), introduced in 2021, the TTS was envisioned as a technological leap forward, integrating digital monitoring to ensure compliance with tax and regulatory frameworks.

By July 2022, the sale of unstamped cigarette packs was declared illegal. Yet, enforcement at the retail level has been inconsistent.

A recent study conducted by the Institute of Public Opinion and Research (IPOR) reveals that the system, while promising, has faced significant implementation challenges, raising concerns about its overall effectiveness.

The TTS mandates manufacturers to use digital stamps that serve as unique identifiers on products such as cigarettes, cement, sugar, and fertilizers. These stamps aim to ensure tax payment, track the supply chain, and prevent illegal trade.

Since mid-2022, the sale of products without these stamps has been prohibited, particularly targeting the tobacco sector, which is notorious for tax evasion and unregulated production.

Despite the clear objectives of the system, IPOR’s findings highlight a troubling level of non-compliance.

Across 11 cities in Punjab and Sindh, the study found that 58% of cigarette brands failed to display the required TTS stamps, indicating a widespread disregard for the regulations.

Furthermore, 65% of products surveyed fell under the duty-not-paid category, consisting of locally manufactured brands evading taxes, while 35% were smuggled brands that bypassed all regulatory checks entirely. This paints a dire picture of an industry that continues to thrive on regulatory loopholes, depriving the national treasury of an estimated PKR 300 billion annually.

Tax evasion in the tobacco sector is not merely an economic issue; it also undermines public health initiatives by promoting the unchecked availability of cheap, harmful products.

The Track and Trace System, in theory, could serve as a game changer, ensuring accountability and leveling the playing field for legitimate manufacturers.

However, the system’s potential remains unfulfilled due to weak enforcement, limited consumer awareness, and active resistance from certain manufacturers. Retailers stocking non-compliant products face minimal consequences, while consumers are often unaware of the significance of TTS stamps, further complicating compliance efforts.

A key discussion hosted by IPOR in Islamabad brought together policymakers, industry experts, and researchers to address these challenges.

Participants emphasized the urgent need for stronger enforcement mechanisms to hold violators accountable, using the alarming findings of the IPOR study to highlight critical regulatory gaps. They also advocated for nationwide awareness campaigns to educate consumers on the importance of compliant products, linking public understanding directly to increased compliance.

Proposals included incentivizing manufacturers and retailers who follow the system, fostering a culture of compliance while deterring illegal trade.

The conversation underscored that only coordinated efforts among stakeholders can unlock the full potential of the Track and Trace System.

For the FBR, the path forward involves not just tightening enforcement but also fostering trust and collaboration with stakeholders across industries.

The Track and Trace System, if effectively utilized, can transform Pakistan’s tax collection landscape and serve as a cornerstone for broader economic reforms.

However, time is of the essence. Without a decisive action to address the gaps in its implementation, the system risks becoming yet another missed opportunity in the fight against tax evasion.

The TTS has the potential to be a game changer for Pakistan’s economy and public health initiatives. However, its success depends on a unified commitment from all stakeholders. As the IPOR study reveals, the stakes are too high for complacency. By closing the gaps in compliance, Pakistan can not only bolster its tax revenues but also build a more transparent and accountable economy. The question remains: are we ready to act decisively, or will we let another opportunity slip through the cracks?

Copyright Business Recorder, 2024