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Track and Trace System Implemented in Pakistan’s Cement Sector to Enhance Tax Collection and Oversight

ISLAMABAD: The Cement sector has introduced a track and trace system under the guidance of the Federal Board of Revenue (FBR). The FBR had been working since July 1, 2022, to implement this solution in collaboration with Authentix Inc. from the US, and AJCL Private Limited and MITAS Corporation of South Africa.

The FBR has previously applied this system in the tobacco industry and is progressing towards its application in the fertilizer sector.

Purpose of the Track and Trace (T&T) system:

The T&T system is necessary to counteract under-reporting of production by manufacturers to evade taxes. This practice leads to oversupply, price reductions, and tax avoidance. The unreported surplus is then sold at lower rates outside the tax framework, contributing to an extensive shadow economy in Pakistan.

The T&T system entails:

The T&T system proposes direct tax collection from the source. Governments monitor production, catalog output, and apply taxes based on actual numbers. For instance, cement production would involve stamping bags for scanning before sale. Scanned data is sent to the FBR, enabling accurate tax assessment.

Implementation and Impact:

Successful demonstrations have been conducted, though cement manufacturers faced delays. The tax department has set an August 18, 2023 deadline for powerful cement manufacturers to adopt the T&T system.

Approximately 70% of operational cement plants are in the North Region, and the remaining 30% in the South Region.

The cement sector’s production capacity is around 83.1 million tonnes. Current taxes include Customs duty, additional Customs duty, Federal Excise Duty (FED), Sales tax, and income tax.

The cement sector is organized and oligopolistic, with major players listed on the stock exchange. Its market capitalization was about Rs 378 billion in March 2023.

In FY22, sector revenues grew by 24%, reaching Rs 671 billion. The sector achieved a gross profit of Rs 72 billion and pre-tax profit of Rs 49.7 billion in H1 FY23.

Pakistan’s per capita cement consumption is 215 kg, reflecting potential growth, as the global average is 550 kg.

The International Monetary Fund supports track and trace implementation for optimal taxation benefits.

Local reports indicate positive results in limiting illicit trade in the tobacco sector through the FBR’s Track and Trace system.

Real-time production monitoring via the T&T system enables proactive decision-making and accurate tax assessments. This repository offers unprecedented visibility into the sector’s production landscape, enhancing revenue collection and contributing to the national exchequer.

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