Tag: international tax stamp asssociation

  • Alarm About Ecuador’s Traceability Approach

    Alarm About Ecuador’s Traceability Approach

    Photo: ITSA

    The International Tax Stamp Association (ITSA) has raised concerns over Ecuador’s decision to allow tobacco and alcoholic beverage manufacturers to hire a provider of their choice to implement the marking and fiscal traceability system required on excise products.

    According to the ITSA, this development sets an alarming precedent and could open the “flood gate” to taxpayers across the globe using traceability systems that are in their own self-interest, leading to a significant drop in the capacity of authorities to collect tax revenue.

    Last year, Ecuador’s Internal Revenue Service (SRI) published resolutions allowing taxpayers to use any provider for traceability systems in a move that the ITSA says is a fresh blow to the country’s SIMAR traceability system. This has been in place since 2017 to regulate and gather excise on beer, alcoholic beverages and tobacco products and has been instrumental in securing more than $100 million in additional tax revenues, according to the trade group.

    The ITSA has already flagged its concerns with the general director of the SRI, reiterating the position that marking and fiscal traceability solutions independent of controlling industry interests are far more effective in securing supply chains and excise. According to the ITSA, these technologies generate independent and precise information to facilitate more effective tax administration through better control of tax declarations and enforcement of taxpayer obligations.

    Ecuador’s move heralds a potential conflict of interest between the provider and taxpayer because authorities cannot independently verify production and import levels without controlling the track-and-trace provider. It also sees noncompliance with the World Health Organization’s Framework Convention on Tobacco Control, which Ecuador has signed up to.

    “We are deeply concerned that Ecuador’s decision could set an unhealthy precedent for the whole industry, both within the region and globally, which could have a serious impact on the wider tax stamp and traceability industry,” said ITSA President Juan Carlos Yanez in a press note.

    “We urge Ecuador’s government, in conjunction with experts, to review its decision about resolutions 19 and 48 and look at fiscal marking and traceability continuity through a new transparent international public bidding process. In this way, the SRI will be able to significantly increase revenue collection via modern and reliable tax payment methods.”

  • Trade Body Urges Changes to EU Directive

    Trade Body Urges Changes to EU Directive

    Photo: ITSA

    The International Tax Stamp Association (ITSA) is calling for improvements to the EU Tobacco Products Directive (TPD), which is currently undergoing a mandatory review.

    Among other things, the association believes the TPD should be more prescriptive on tobacco product security features, thereby avoiding countries adopting too many different features, which creates confusion.

    The tobacco industry’s responsibilities should be limited to ordering, applying and reporting the use of tax stamps, with all other responsibilities reassigned to independent providers selected by government authorities.

    ITSA also recommends that the importance of tax stamps be recognized in the legal language of the EU TPD. Therefore, any new version of the directive should encourage the adoption of legal instruments to introduce tax stamps by those member states that currently don’t use them, as well as introduce, as a transitional measure, a security label designed and procured by the issuing authority.

    Juan Yanez

    Another recommendation is for the language used to describe tax stamps to explicitly require them to have traceability functionality. This is an essential tool for the security of the system and complements the unique identifier directly printed or marked on the product pack. It also improves tracking of the issuance of the tax stamp, secures tighter controls and limits the impact of any fraudulent activity.

    “Now, more than ever, the time is right for us all to come together as a united force over illicit trade and lost tax revenues,” said ITSA Chairman Juan Carlos Yanez Arenas.

    “With the tobacco traceability requirements of the WHO FCTC Protocol entering into force in 2023, countries that are party to the Protocol have two years left to implement these systems, and we can help them with this by offering practical guidance based on proven best practice. We have identified the best features of the EU TPD, as well as those that can be improved on, which can be taken and used to deliver world class programs that everyone involved in the tobacco sector stands to benefit from.”

  • Trade Body Calls For Tax Stamp Clarity

    Trade Body Calls For Tax Stamp Clarity

    Photo: Tobacco Reporter archive

    The International Tax Stamp Association (ITSA) is urging greater clarity around the definition of the tax stamps used to secure excise revenues from tobacco products.

    The move comes in the wake of the continued misuse of the term “tax stamp” by some sector solution providers, which is raising issues around specification and seem to contravene international standards.

    The ITSA says there is a lot of confusion over specific terms, notably the difference between tax stamps and the security feature labels used by some member states under the EU Tobacco Products Directive (TPD).

    The fundamental differences between tax stamps and secure labels pertain to functionality and the specifier/issuer. Stamps fundamentally serve a tax purpose and may fulfil other functions, such as those related to authentication, while secure labels should just be used for authentication purposes.

    Tax stamps play an important role in securing revenues as international supply chains continue to be threatened by counterfeiters and smugglers look to take advantage of the pandemic to trade in illicit tobacco.

    The latest 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.

    ITSA’s call comes as most EU member states use tax stamps to comply with the TPD’s security feature requirements while in five other states plus the U.K., which do not use tax stamps, the tobacco industry has opted for secure labels to ensure conformance with the TPD.

    Moreover, individual tobacco manufacturers contract directly with various printers for the provision of these labels rather than going through the national tax or other government authorities.

    The current situation is further exacerbated by the misuse of terminology in other parts of the world. In India, for instance, there are reports that state excise departments use the terms “excise adhesive label” and “security hologram” to refer to the same thing, which is adding to the confusion and highlighting the need for strong action around definitions, the ITSA said.

    Some sector solution providers continue to describe nontax labels as tax stamps when they are clearly not.

    Juan Carlos Yanez, chair, ITSA

    Juan Carlos Yanez, chair of the ITSA, said confusion reigns where there needs to be clarity. “The need for tax stamp programs has never been more timely as we see government revenues plummet, deficits rise and debt levels swell to eye-watering proportions in the face of the Covid pandemic.

    “So the differences between tax stamps and nontax-related secure labels must be clear and unequivocal to remove the doubts. Yet, some sector solution providers continue to describe nontax labels as tax stamps when they are clearly not.

    “Moreover, the use of the wrong terminology may contravene international standards and water down stringent recommendations of standards, notably ISO 22383:2020, covering guidelines for the selection and performance evaluation of authentication solutions for material goods, and ISO 22382:2018, covering guidelines for the content, security, issuance and examination of excise tax stamps.”

    A tax stamp 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.” This identifies the key and unique function of a tax stamp, which is to show that the required tax on the item that the stamp is affixed to has been paid—the stamp acts as a receipt. It also recognizes that stamps may have other functions including those relating to legislative compliance such as complying with the security feature provisions of the TPD.

    Tax stamps are specified and issued under the authority of the appropriate tax authority, defined in ISO 22382 as “a government (national, provincial, state or local) agency that has responsibility for the collection of applicable taxes and for the specification and design of tax stamps.”

    Secure labels are normally specified and issued by the brand owner while tax stamps are state organization issued. The TPD is the exception to this in that it requires authentication labels to conform to an agreed national design and security specifications, with at least one security element on the label issued by an authorized and independent third party.

    “Tax stamp and traceability programs help governments protect and recoup much-needed revenues as they battle to secure excise and get their public finances back on track,” said Yanez. “So the bottom line as far as the difference between a tax stamp and secure label is concerned in this battle is that the latter doesn’t provide proof of tax paid while the former does.”

    Tax stamps 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 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. Considering the highly detrimental and pervasive nature of the illicit trade of excisable products, great ills require great remedies.

  • Fighting Fakes

    Fighting Fakes

    Chinese law enforcement officers destroy confiscated equipment that was used to manufacture counterfeit cigatrettes (Photo: Tobacco Reporter archive)

    As illicit trade thrives in the pandemic, demand for security devices is expected to grow.

    By Stefanie Rossel

    Reduction in trade, restrictions on movement—while many legal businesses are suffering in the difficult conditions brought about by governments’ attempts to halt the proliferation of Covid-19, the pandemic has provided fertile ground for the activities of criminal organizations. A 2020 report by Euromonitor International found that the pandemic led to a surge in illicit trade, particularly in the tobacco industry, where organized crime is causing governments to lose billions in tax revenue as well as severely affecting legitimate businesses.

    “The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance,” says Nicola Sudan, general secretary of the International Tax Stamp Association (ITSA). “These include disrupted supply chains combined with global demand going off balance and government interventions, such as closed borders and consumption bans.

    “There is also altered consumer behavior as a result of increased economic hardship and lockdowns. In North America, for instance, we have seen an exponential increase in illegal tobacco—and drug—trafficking direct to consumers while they are locked down at home. This is expected to continue as a way of avoiding taxes. And in France, interestingly, changes in sales patterns during times when borders were closed has also shown the extent of cross-border shopping in normal times when customers take advantage of differential tax regimes in the European Union to circumvent tax measures.”

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    Stretched government resources have curtailed enforcement efforts. “Indeed, the pandemic impacted the traditional work practices of tax authorities, leading to decreased inspection visits to factories and reduced audit performance. This weakened state capacity might have emboldened producers to mis-declare and under-declare their production,” says Sudan.

    Criminals have been quick to exploit these opportunities to expand their activities in scope and scale. “While legitimate businesses were struggling to maintain business operations during the pandemic, criminal elements adapted to the altered conditions with remarkable speed. With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.”

    Increased illicit trade in excise goods also resulted as an unintended consequence from well-intentioned efforts to blunt the impacts of the pandemic. Several countries, including South Africa, banned both the sale of liquor and tobacco products during lockdown, leading to unprecedented levels of illicit trade. “According to news reports, over 90 percent of smokers were able to buy their cigarettes from illegal sellers [in South Africa],” says Sudan. “Many people fear these levels of illicit trade will persist long after the pandemic finally subsides as they will have the effect of further entrenching in different countries an already thriving illicit tobacco and alcohol market.”

    The pandemic has created the ideal conditions for illicit trade in general to grow by amplifying the underlying key drivers that contribute to market imbalance.

    Nicola Sudan, general secretary, International Tax Stamp Association

    Revenues required

    The massive rise in counterfeiting during the pandemic is expected to boost demand for security and authentication devices to better protect brands. Sudan notes that requests for security devices, including that for tax stamps and marks and secure traceability systems, come primarily from national governments. “Given the devastating impact of the pandemic on economies across the world, it has never been more important for governments to be able to raise significant levels of revenue—and raise them quickly—in order to rebuild their ravaged economies. To do this, however, they will likely need to increase tax rates, including excise taxes.”

    Sudan warns that before imposing tax increases, especially in the exceptional circumstances created by the pandemic, governments should ensure they have robust tax administration, border management and supply chain control systems in place to recover the taxes and duties already due to them that are lost to illicit trade. “This is where security mechanisms such as tax stamps and traceability schemes have a significant role to play as confirmed by authoritative bodies such as the World Bank and as demonstrated by systems already in place in a number of countries.”

    Sudan anticipates the greatest need for security devices to come from developing economies, mainly throughout Asia and Africa, where weak tax administration and supply chain control have led to widespread acts of noncompliance and tax evasion by domestic operators and where porous borders have facilitated smuggling and other forms of illicit trade. “Robust tax administration and supply chain control systems are generally characteristic of advanced economies because of their well-established practices. In developing countries, there is an appetite for new technologies such as the use of tax stamps and other security devices to strengthen tax administration and increase compliance by economic operators involved with excisable products.”

    With air traffic and air cargo significantly reduced, traffickers increasingly utilized land shipments, international small parcel shipments and relocated production facilities closer to destination countries.
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    Sophisticated solutions

    In recent years, authentication technologies in the tobacco sector have made great strides. The implementation of a tracking and tracing regime is a requirement of the World Health Organization Framework Convention on Tobacco Control’s (FCTC) supplementary treaty, the Protocol to Eliminate Illicit Trade in Tobacco Products, which entered into force in September 2018. Traceability of the movement of legal tobacco products from the field to the consumer has already become obligatory in the EU, which, as part of its revised Tobacco Products Directive, requires cigarette packs and other tobacco products packaging to be labeled with an individual ID code, a so-called unique identifier (UID) since May 2019.

    An authentication system using a UID involves the generation, capture, encryption, application, recording, interrogation and verification of the code. “Such systems are designed to provide crucial data to revenue and customs authorities for the effective control and enforcement of their excise management programs,” says Sudan. “Comprehensive track-and-trace systems, which go a stage further by following the product all the way from manufacturer/distributor to retailer/consumer are not yet the norm. However, the building blocks are there, and an increasing number of such systems are now being implemented—not only because it makes financial and logistical sense to do so but because, in a few years’ time, the more than 60 parties to the WHO FCTC Protocol will in any case be obliged to implement tracking and tracing as part of their commitment to the Protocol.”

    An all-digital solution, as opposed to one based on the use of paper-based security labels, cannot be used to cover the traceability, authentication and tax collection needs of a government, she clarifies. “Although there are some very good digital systems currently in place that provide a lot of data for national excise management programs, tobacco products in particular are susceptible to acts of fraud and manipulation due to the high levels of tax associated with them. Such illicit acts involve the cloning of a UID on a pack of cigarettes to make it look like the real thing and ostensibly perform the same function as a legitimate code.”

    To mitigate the risk of code duplication, ISO standards recommend incorporating an intrinsic, physical security layer into the UID as an authentication element. “However, although it is possible to incorporate some security into digital codes, a lot more security can be carried by a label such as a tax stamp. The stamp provides better protection and higher visibility as well as providing an anti-tampering function and catering to a wider range of stakeholders. So, while a digital solution may be suitable for low-tax or no-tax products, tobacco products in particular need a more robust solution to deal with the fraudulent practices that affect this high-risk market.”

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Trade Body Holds Seminar on Tax Stamps

    Trade Body Holds Seminar on Tax Stamps

    Photo: ITSA

    The International Tax Stamp Association (ITSA) will hold a seminar on Dec. 3 examining the central role tax stamps play in securing revenues as international supply chains continue to be threatened by counterfeiters and smugglers take advantage of the Covid-19 pandemic to trade in illicit tobacco.

    The trade in fake tobacco is worth between $40 billion and $50 billion annually worldwide and churns out more than 600 billion fake cigarettes, according a 2020 World Bank Report.

    Properly implemented tax stamp and traceability programs can help governments protect and recoup much-needed revenues as they battle to get their public finances back on track, says ITSA.

     “The need for tax programs has increased dramatically in the global coronavirus pandemic, which has seen government revenues plummet, deficits rise, and debt levels swell to eye-watering proportions,” said Juan Carlos Yanez, chair of ITSA.

    “Whether your country, state or jurisdiction currently uses a tax stamp scheme or is considering introducing such a scheme, it would be worth finding out what a modern initiative can deliver and why now is the right time to introduce or expand your current scheme.”

    Webinar attendees also have the chance to discuss the importance of effective production monitoring and the need for a global information sharing focal point that facilitates the exchange of important data and best practice between countries.

    More than 150 revenue agencies (national and state governments) globally use tax stamps to collect tax duties and excise payments, involving the worldwide production of some 140 billion stamps annually. As well as providing visible proof of tax payment and revenue collection, tax stamps have also taken on a key role in product authentication, anti-tampering and track and trace applications.