The Federal Board of Revenue (FBR) of Pakistan has issued a notification (S.R.O. 364 (I)/2025) announcing significant amendments to the Sales Tax Rules, 2006. These changes, made under the powers conferred by the Sales Tax Act, 1990, and the Federal Excise Act, 2005, aim to bolster the electronic monitoring of the production of specified goods manufactured within the country. This move signifies a stronger push towards leveraging technology to enhance transparency, curb tax evasion, and improve revenue collection.
The notification introduces several key changes, primarily focused on Chapter XIV-BA of the Sales Tax Rules, which now has a revised heading: “ELECTRONIC MONITORING OF PRODUCTION OF SPECIFIED GOODS”. This change signifies a broader scope beyond just video analytics, encompassing a more comprehensive approach to electronic oversight.
Key Amendments Detailed:
- Enhanced Monitoring Technologies (Rule 150 ZQR): The amendments expand the scope of electronic monitoring by including “video analytics solution” and “digital eye” alongside “video surveillance.” This indicates the adoption of more sophisticated technologies capable of not only recording but also analyzing video footage to identify specific objects, behaviors, and production counts. The “digital eye” is defined as the Board’s proprietary software for this purpose.
- Revised and Expanded Definitions (Rule 150 ZQS): A crucial aspect of the notification is the updated definition section, which clarifies the roles and technologies involved. Notable new and revised definitions include:
- Authorized Vendor: A person authorized by the Board to provide and maintain the electronic monitoring equipment.
- Approval Committee: A committee of FBR officers responsible for approving vendors of the equipment to be installed at production lines.
- Applicant: Any person seeking approval for their equipment for electronic monitoring.
- CCU (Central Control Unit): The central hub established by the Board for receiving and processing data from the monitoring equipment.
- Digital Eye: The Board’s software for identifying objects, behaviors, and recording production counts in video footage.
- Production Monitoring Equipment: Encompasses hardware, associated software, and any other equipment specified by the Board for electronic monitoring.
- Video Analytics/Intelligent Video Analytics: A system for real-time electronic monitoring of production.
- Video Surveillance: Recording of the production process using recording devices.
- Mandatory Electronic Monitoring (Rule 150 ZQT): This rule mandates that the production of specified goods manufactured in Pakistan will be monitored electronically using video surveillance, video analytics solution, and digital eye. The objectives of this monitoring are clearly defined:
- Real-time capture of the production process.
- Real-time collection of data showing production through object detection and counting.
- Transmission of data to the Central Control Unit (CCU) at the Board on a real-time basis, including storage and archiving.
- Detection of unexpected stops in production.
- Quantitative analysis of production output.
- Data analytics for necessary legal actions. Furthermore, the rule explicitly states that no manufacturer of specified goods can remove production from their premises without undergoing this mandatory monitoring process.
- Focus on “Production” Monitoring (Rule 150 ZQU): The amendments replace the word “video” with “production” in sub-rules (1) and (2) of Rule 150 ZQU, emphasizing that the focus is on the overall production monitoring equipment rather than just the video aspect. The phrase “excluding digital eye” has also been removed, indicating the integration of this technology into the broader monitoring framework.
- Changes in Vendor Authorization (Rules 150 ZQW, ZQX, ZQY, ZQZ): The notification outlines a revised process for the authorization of vendors who will provide and maintain the electronic monitoring equipment. Key changes include:
- Application Process (Rule 150 ZQW): The application process for becoming an authorized vendor is detailed, requiring the submission of comprehensive documentation including company profiles, managerial and technical personnel details, client lists, technical specifications of the equipment, financial history, tax registration details, and an undertaking against blacklisting and fiscal fraud. Sub-rule (3) of this rule has been omitted.
- Authorization Criteria (Rule 150 ZQX): Authorized vendors must demonstrate the working of their production monitoring equipment as specified by the Board.
- IT Team Responsibilities (Rule 150 ZQY): The IT team of the Board will play a crucial role, with their functions to be specified by the Board.
- Vendor Approval Process (Rule 150 ZQZ): The timeline for processing vendor applications has been extended from thirty to sixty days. The term “licensing” has been replaced with “approval.” Qualified applicants are now required to deposit an unconditional bank guarantee equivalent to five percent of the project cost or rupees five million, whichever is lower, before authorization. This bank guarantee will remain valid for the entire duration of the authorization and can be encashed in case of violations.
- Responsibilities of Authorized Vendors (Rule 150 ZQZA): The notification elaborates on the responsibilities of the authorized vendors, including:
- Procuring, installing, and maintaining the production monitoring equipment at the manufacturers’ production lines.
- Specifying the expected delivery and installation timeline, which should not exceed ninety days from the date of the purchase order.
- Assisting the FBR’s IT team in their functions.
- Providing all upgrades to the associated software and bug fixes.
- Ensuring immediate response and repair of any technical problems in the system to ensure uninterrupted operation.
- Technical and Training Support (Rule 150 ZQZC): Authorized vendors are obligated to upgrade the installed IT infrastructure and software as per new technological requirements and provide comprehensive technical and operational training to FBR officers and other concerned officials. The Board will also conduct appraisal reviews of the equipment’s functioning and efficacy.
- Fee and Charges (Rule 150 ZQZD): The notification clarifies the financial aspects, stating that the vendor will charge the manufacturer for the purchase, installation, operation, and maintenance of the production monitoring equipment. No fees will be charged to the FBR. The approval committee has the authority to decide the maximum amount of fees and charges that can be collected by the authorized vendors and will notify these through a public notice. The determined fees will generally not be revised during the authorization period, except in cases of significant economic changes, in which case vendors can petition the approval committee for revision. Manufacturers will have the opportunity to present their views during such proceedings. Vendors whose upward revision petitions are rejected can request cancellation of their authorization.
- Functions and Responsibilities of Vendor (Rule 150 ZQZE): This rule further details the functions of the authorized vendors, including setting up and maintaining IT infrastructure, operating and maintaining the production monitoring equipment, ensuring real-time data transmission to the CCU with a maximum delay of one hour, providing necessary support to FBR officials, and ensuring the integrity and security of the data.
- Minor Amendments (Rules 150 ZQV, ZQZB, ZQZG): Sub-rule (4) of Rule 150 ZQV and the entirety of Rule 150 ZQZB have been omitted. Additionally, the word “FBR” has been replaced with “Board” in Rule 150 ZQZG for consistency.
Impact and Implications:
These amendments signal a strong commitment from the FBR to leverage technology for more effective tax administration. By mandating electronic monitoring of specified goods production, the government aims to:
- Reduce Tax Evasion: Real-time monitoring will make it harder for manufacturers to underreport production and evade sales tax and federal excise duty.
- Improve Revenue Collection: Enhanced transparency and accurate production data will lead to more accurate tax assessments and increased revenue.
- Ensure Fair Competition: By leveling the playing field, the regulations aim to ensure that all manufacturers comply with tax laws.
- Enhance Accountability: The inclusion of digital eye and video analytics will provide a more robust and verifiable record of production.
Challenges and Way Forward:
While these amendments are a positive step, their successful implementation will depend on several factors, including:
- Effective Vendor Selection and Oversight: The FBR will need to ensure a transparent and rigorous process for selecting qualified authorized vendors and establish mechanisms for effective oversight of their performance.
- Technological Infrastructure: Ensuring the availability of reliable internet infrastructure and the smooth operation of the Central Control Unit will be crucial.
- Capacity Building: Training FBR officers to effectively utilize the data and insights generated by the electronic monitoring systems will be essential.
- Addressing Potential Concerns: Manufacturers may have concerns regarding the cost of the equipment and potential disruptions to their operations. Open communication and addressing these concerns will be important.
