Holography: Helping Stamp Out Tobacco Counterfeiting

Illicit smuggling and counterfeiting cost treasuries billions of dollars a year in lost revenue. And it’s not just a financial cost that affects governments—tobacco manufacturers can see brands tarnished, revenues tumble and market capitalization dented through the counterfeiting of their products. Current figures indicate that the trade in fake tobacco is worth upward of $50 billion annually worldwide, according to a 2020 World Bank report and accounts for approximately 600 billion illicit cigarettes per year.

It’s against such a global backdrop that holographic security features continue to be widely utilized in tax stamp programs as effective weapons in the war on counterfeiting, assisting governments in securing tobacco excise duty as a critical source of revenue while also providing a highly effective way of controlling and limiting consumption.

To help tackle the counterfeiting problem, nearly 120  billion tax stamps, in the form of securely affixed labels, are issued annually by hundreds of provincial and national revenue agencies around the world in more than 90 countries. The vast majority (90 percent) are used on tobacco products. This suggests that governments and law enforcement continue to see their value as central features in effective revenue gathering strategies.

Tax stamps serve two purposes. The first is to provide a record of tax payment, and digitally based tax stamps enable products to be tracked and traced, providing a record of a tobacco product’s journey from the factory floor to the hands of the consumer. The second role is to provide evidence that the stamp—and hence the product it’s affixed to—is genuine. So, the physical integrity of the stamp—protected by security print, taggants and, in many cases, holograms—fulfills this latter requirement. The European Union Tobacco Products Directive (TPD) also includes the option of incorporating a hologram as an overt feature.

Growth of tax stamps is driven by increased global cigarette consumption on the back of rapid population growth, particularly in developing parts of the world. And, of course, as demand has grown, so too has the trade in illicit products produced by ever more sharp counterfeiters and international criminal organizations. Many counterfeits are intrinsically unsafe and drive incidences in poisoning and deaths due to fake, illicit or substitute products reaching the hands of both innocent and complicit consumers.

The Right Time

Now, more than ever, the time is right for everyone with a vested intertest in having a strong and legitimate tobacco sector to come together over illicit trade and lost tax revenues. With the tobacco traceability requirements of the World Health Organization Framework Convention on Tobacco Control (FCTC) Protocol entering into force in 2023, countries that are party to the Protocol have less than two years left to implement appropriate systems. Tax stamps can be the foundation of a highly effective tobacco control program and should include strong holography-based authentication features.

A tax stamp, which is defined by ISO 22382 as a “visible stamp, label or mark placed on certain types of consumer goods to show that the applicable excise tax has been paid,” can be an integral element of track-and-trace programs and best practice within the sector, effectively monitoring the location and movement of goods throughout the supply chain from manufacture to point-of-sale. A secure track-and-trace program works by assigning a unique individual identity to each item—a pack of cigarettes, for example—during the manufacturing process.

Once assigned, the identity is stored in a secure database and updated every time there is a significant event, such as a change of ownership or payment of tax due, and supports authentication throughout the supply chain. This produces a comprehensive product history; it means that if the pack (or bottle, in the case of alcohol stamps) is found in a place or state that is irregular, its provenance can be fully traced back and the responsible party held accountable.

The digital traceability features of tax stamps, combined with their material security features and tamperproof functionality, are the most robust means to ensure tax compliance, audit optimization and product protection.

Governments and law enforcement agencies around the world are strident in their resolve to find better solutions for protecting tax-raising stamps against the indelible mark of the counterfeiter—a role holographic technology fulfills. The first country to issue a tax stamp featuring a hologram was Romania in 1995. Since then, the number of countries using holography to improve the security of their tax stamps has grown to more than 30. They include Russia, Kazakhstan, Ukraine, India, Indonesia, Sri Lanka, Mozambique, Zambia and several EU states.

Out of the 22 Indian states that use tax stamps, 19  currently feature a hologram, while in the U.S., the state of Michigan has  developed stamps developed around a holographic security feature with in-built levels of additional security. While cigarette consumption has been in long-term decline in the state, the U.S. project yielded a significant rise in cigarette excise tax collections.

Application Success

In Africa, Mozambique is the latest country to adopt new holographic tax stamps and should any one of the continent’s highly populated countries decide to introduce stamps, then the volumes and the value of tax stamps in circulation would escalate significantly. Other parts of the world, large areas of South and Central America and Asia, are seeing more tax stamps emerging where economic prosperity has the best chance of maturing. In these places, in excess of 5 trillion cigarettes are smoked per year (96 percent of all tobacco sales), with volume expected to increase in line with population and economic growth.

Clearly, these are huge volumes but also an enormous opportunity for resourceful counterfeiters ready to take advantage of regional markets where governments and security agencies either lack the wherewithal to tackle the problem or present resources are overstretched.

According to Nicola Sudan, secretary general of the International Tax Stamp Association (and also author of the report), “holograms have been one of the cornerstone security technologies since the mid-1990s and, although the emphasis on tax stamps, particularly those used on cigarettes, is now on digital technologies for track-and-trace, authentication remains a core function, and holograms continue to serve that function.”  

It’s clear that holography is a technology that governments and agencies can rely upon and value as an effective, reliable and dynamic security solution—a critical part of an effective tax stamp program. It’s also apparent that suppliers of components, products and systems to the tobacco sector can rely on this most resourceful and flexible of security devices to protect investments and brand quality.