Pakistan Finalises Major Track and Trace Agreement…Only to Have it Stayed in Court

In March, the consortium of Authentix, Inc, MITAS Corporation and AJCL Private Limited finalised a licence agreement with the Pakistan Federal Board of Revenue (FBR) to implement a track and trace system on tobacco, cement, sugar and fertiliser. The agreement covered an initial five-year term, with a three-year extension option.

However, one week after its finalisation, the Sindh High Court in Karachi granted a temporary stay on the agreement, following lawsuits filed by two of the losing bidders. Among other allegations, the bidders were claiming that the transparency of the bidding evaluation process had been compromised.

Kevin McKenna, Chief Executive Officer for Authentix, the leading member of the consortium which has been awarded the licence, stated: ‘Authentix was disappointed with the high court’s decision to impose the temporary stay in this matter.

‘Pakistan has made several attempts to implement this extremely important track and trace programme, to both comply with WHO FCTC directives and recover billions of rupees lost annually in excise tax revenue from illicit trade in tobacco, cement, sugar and fertiliser.

‘We believe the November 2020 invitation and vendor selection resulting from the FBR’s Instructions for Licence (IFL) for an IT-based solution for electronic monitoring (track and trace) on these products, and the related procurement process, was conducted with the highest degree of objectivity and transparency, with strict adherence to required law.

‘The Authentix Consortium, selected by FBR and now holding the licence in this case, has filed an emergency motion with the Sindh High Court requesting this temporary stay be immediately lifted. We will continue to aggressively pursue this course of action so this very important programme can be implemented without further delay.

‘The plaintiffs who filed the initial complaint for the temporary stay were also applicants and were evaluated under the same specifications and requirements set forth in the IFL and were not selected. Now these parties are attempting to delay this important project based on meritless claims and we trust the High Court will render rapid relief in our favour,’ said Mr McKenna.

The programme is intended to provide both domestic manufacturers and importers with the capability to apply secure and digitised tax stamps to each product of the aforementioned industries distributed in Pakistan.

It will provide for production monitoring, product movement control and product authentication via secure and non-intrusive technologies installed at manufacturing lines, dedicated hand-held equipment, smartphone applications, and multi-faceted security stamps.

Based on anticipated industry product volumes, the total contract will cover an expected 6.5 billion consumer products per annum.

According to the World Bank, production and importation of products in Pakistan for the four industries involved are subject to widespread illicit trade practices such as smuggling, counterfeiting, and production volume underreporting, resulting in up to an estimated 50% of the total volume of all goods sold in the country, said Authentix in a press release.

This illicit trade, and lack of proper production reporting, causes a massive loss of tax revenue for the Pakistan state budget. For illustration, a key industry source reports that in the segment of tobacco products alone, the amount of tax evasion adds up to over PKR 77 billion ($481 million) per year, which is over three times the amount currently allocated for annual federal government spending on healthcare.

‘Pakistan has been attempting to get a tax stamp programme off the ground for over 10 years and each time it has made an attempt the project has been somehow interrupted,’ said Michael Eads, a track and trace expert and customs/IT consultant to FBR.

‘At some point, the country is going to need to overcome these barriers and get on with it, given the country’s poor tax compliance in this area, high illicit trade and IMF commitments,’ he added.

According to the terms of the country’s $6 billion IMF bailout in 2019, Pakistan was supposed to have track and trace in place by March 2020.