TAX evasion is a significant threat to the economic stability of any nation, and Pakistan is no exception. One of the most pressing challenges in this regard is the illicit trade in fuel. The country’s geo-graphical location, coupled with its porous borders, especially with Iran, has led to rampant smuggling of petroleum products. The price discrepancy between Iran and Pakistan further exacerbates the issue, making the commodity highly lucrative for the smugglers.

According to a recent study by the Pakistani Intelligence Bureau, the illegal supply of Iranian petroleum, oil and lubricant (POL) products results in a staggering annual loss to the national kitty of at least Rs225 billion. While smuggled Iranian oil is often sold at illegal roadside filling stations, it has now infiltrated regular petrol pumps, posing a grave threat to the integrity of Pakistan’s fuel sector.

The Oil and Gas Regulatory Authority (Ogra), recognising the seriousness of the issue, recently organised a workshop aimed at implementing effective track-and-trace technologies to curb fuel smuggling. It has collaborated with the Federal Board of Revenue (FBR) and oil marketing companies (OMCs) to explore the use of technologies, like radio-frequency identification (RFID) and automated tank gauging systems (ATGs). These technologies, if successfully adopted, can significantly reduce the flow of illicit fuel into the market.

However, there is a growing concern that the authorities may be on the brink of repeating the mistakes they had made during the implementation of the track and trace system (TTS) in other sectors, like fertiliser, sugar, cement and tobacco. The TTS licence is about to expire, and after four years of delays, the system remains either unimplemented or partially functional.

The failure to fully execute this system has raised questions about the commitment and diligence of the authorities concerned, and whether they are being undermined by powerful smuggling cartels.

One of the most effective and widely used technologies for preventing fuel tax evasion globally is fuel marking. This involves adding a unique, invisible chemical marker to fuel at the refinery stage.

These markers allow authorities to differentiate between legitimate fuel and illegally diverted or adulterated fuel. Indonesia, Malaysia, Algeria, Ghana, Kenya and the Philippines have success-fully implemented fuel marking systems for decades. Pakistan must adopt this successful technology.

Fuel marking works in a simple yet highly effective manner. When the fuel reaches its final point, such as retail stations, samples can be tested for the presence of the marker. If the marker is absent, it is immediately flagged as illicit fuel, and penalties are imposed on the perpetrators. This system has proven to be an excellent deterrent against fuel smuggling and tax evasion, providing a clear line of accountability across the supply chain.

Instead of waiting for another round of inquiries after billions of taxpayer rupees are spent with little to show for it, timely action must be taken now. The government must not allow the interests of a few to undermine the potential for a more secure and transparent fuel supply chain.

Zeeshan Ali
California, USA

Published in Dawn, May 29th, 2025