ISLAMABAD: A Swiss company has offered to help the tax authorities illegal trade through introduction security marking, tax stamps and security ink/labels on different goods, especially those subjected to excise duty. The company claims that it can assist Pakistani tax authorities in combating illegal trade of all excisable commodities through its smart and secure technology which will have secure codes and could be tracked throughout the distribution chain.
It is to be recalled that in 2013, the FBR had made efforts to introduce such technology and even published a request for proposal, but the Swiss company had raised objections to the FBR’s proposal and instead had recommended at that time that the 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.
The FBR team currently working on this subject has its own basic reservations over the Track and Trace technology and wants to comprehensively analyze the system as well as international experience in this regard before reaching any conclusion.
The Swiss company has already helped Malaysian government introduced the system 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 (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.
