A company from Switzerland is pursuing Pakistani tax authorities to introduce security marking, tax stamps and security ink/labels, etc on different goods, especially those subjected to excise duty. It is reliably learnt here on Sunday that the said company claims that it can assist Pakistani tax authorities in combating illegal trade of all excisable commodities through its smart and secure technology which would haves secure codes and would be tracked throughout the distribution chain.
It may be recalled that in 2013 FBR had tried this route of technology and even published a request for proposal (RFP). The said company in 2013 had raised objections to FBR's proposal and had recommended at that time that FBR project should cover its proprietary solution. Similar efforts can again be made to approach and convince the tax managers to introduce such proprietary solutions. Accordingly to a legal expert any proprietary solution of one specfic company would negate the letter and spirit of relevant rules of government. This may also result in legal challenge by other competing suppliers, landing FBR in legal battles for many years.
The FBR team currently working on this subject has its own basic reservations over the Track and Trace technology and wants to comprehensively analyse the system as well as the international experience in this regard before reaching any conclusion. When contacted, a tax expert was of the view that before any such decision was made it would be prudent to review evidence and experience from other countries that did introduce such technology based solutions being offered by the said company to FBR.
Malaysia is one country that did introduce the system supplied by the same Swiss company. In 2004, the Government of Malaysia introduced a system of ink markings on cigarette packs to tackle illegal trade in cigarettes. A paper tax stamp (or 'banderol') was also introduced. Evidence from Malaysia that is available in public domain, however, shows that this technology solution had no effect on countering cigarette smuggling or protecting government revenues. Immediately following the introduction of the ink security mark in 2004, there was only a slight dip in the illegal trade of tobacco products. But soon after that from 2005 onwards illicit trade in cigarettes has grown rapidly in Malaysia. From around 14% of the cigarette market in 2005, illicit trade reached a record high of 39% in 2011. Thus Malaysia has today become the world's number one consumer of illegal cigarettes as percentage of total market, in spite of this Swiss technology implemented in Malaysia for the last nearly one decade. It is estimated that Government of Malaysia is annually losing about RM2 billion (Rs 60 billion approx.) because of tax evasion in the cigarette sector. Unaffected by security measures of this Swiss company, the illegal tax-evaded cigarette sector has grown equally rapidly in Malaysia.
According to the tax expert it goes without saying that the law enforcement environment and compliance levels in Malaysia are much better than Pakistan. If the system of the Swiss company could not produce any befits for the Government of Malaysia, the possibility that it would work better in Pakistan is indeed far-fetched. Moreover, the Malaysian cigarette market is far smaller than Pakistan which has more than 7,00,000 retail outlets, out of which more than 60% outlets are in rural areas. It would be next to impossible for FBR to undertake monitoring and enforcement of such a solution in Pakistan demographics.
The system also does not work on a cross-border basis. Any technology solution that has to work on cross-border basis requires similar/same technology solutions working in all other countries. All those systems need to be able to have an inter-face with each other and also be able to share and exchange data of goods, for example, cigarettes. That means internationally-recognised serialisation standards, global data exchange standards, and record aggregation. Even if one country, say Pakistan, were to introduce track-and-trace, such a solution would be redundant in controlling cross-border illicit trade as no data from other countries would be available until all other countries also have same solution and are all linked up. Even WHO Protocol on Illicit Trade has not been able to decide what track-and-trace solution would be workable globally.
Such a gigantic technology solution would be so expensive that it would far exceed even the current cost that Government incurs annually due to lost revenue. Thus it is not fair to claim the cost of the system is 'acceptable cost'. Experience world-wide indicates that the cost for governments, manufacturers or distributors and retailers is far from 'acceptable'. Actually, WHO's Protocol on Illicit Trade in Tobacco Products, that was opened for signatures, envisages developing countries to be provided assistance as and when such a global solution in indeed firmed up by WHO. That is why the said Protocol provides that countries will have 5 or 10 years before they would be required to consider such a solution. The consideration of cost of this expensive technology solution is vital especially for countries like Pakistan. Even for a relatively simple system, Malaysian had to pay multi million dollars for the implementation of the solution. The same company proposed a huge price in the Philippines. The Governments in Philippines and in Turkey, however, did not entertain the proposal for one reason or another.
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