The cement sector in Pakistan has introduced a track and trace (T&T) system in compliance with the directives of the Federal Board of Revenue (FBR).
The FBR has been actively working on implementing the T&T solution in the cement sector since July 1, 2022, with the support of its licensee Authentix Inc. from the US, along with consortium partners AJCL Private Limited and MITAS Corporation of South Africa. This system has already been successfully implemented in the tobacco industry and is currently being extended to the fertilizer industry.
The necessity for the T&T system arises from the common practice of manufacturers underreporting their production numbers to evade taxes. This leads to excess supply in the market, resulting in price reductions.
To avoid paying taxes on the surplus production, manufacturers often resort to selling it at lower prices outside the tax net, contributing to the growth of the black market. This underground economy is estimated to be a substantial portion of Pakistan’s GDP, ranging from 40% to 80%.
The T&T system proposes collecting taxes directly at the source by monitoring production and cataloging a company’s output, then taxing them based on these documented figures. For instance, cement bags would be stamped and scanned before sale, with the data sent directly to the FBR for taxation purposes.
While the T&T system has demonstrated successful results in various factories, there have been delays on the part of cement manufacturers in its implementation. The tax department has set a deadline of August 18, 2023, for powerful cement manufacturers to fully implement the Track and Trace system.
Pakistan’s cement sector has a significant production capacity of approximately 83.1 million tonnes. The cement industry is organized and oligopolistic in nature, with most major players listed on the Pakistan Stock Exchange. In FY22, the sector’s gross revenues increased by 24%, reaching Rs 671 billion.?