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Tax Stamps: An Essential To Avoid Counterfeit In Liquor Industry

Anti-counterfeiting solutions like TAX Stamps have always been an important authentication solution used by Government authorities to curb illicit trade, protect the consumer and to increase the excise revenue.

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Tax Stamp is a stamp affixed to certain products (mainly used in sin products) to indicate that required tax has been paid. According to its usages, it is known by a variety of names for example excise stamps, excise adhesive labels, banderols, etc. They have been around for hundreds of years and continuously evolving with innovation. In last 2 decades, the new generation PHYGITAL Tax Stamps are evolved in response to demands for higher security and integrated supply chain control. 

What is the purpose of a Tax Stamp? 

They have been extensively used in alcohol and tobacco products. The main purpose of a Tax Stamp, however- and the reason it was created in the first place – is to provide a physical means of collecting tax. The stamp denotes that a payment has been made – or is due to be made – to a recognized governing authority regarding an excisable item. 

According to International Tax Stamp Association (ITSA), today 90 countries across the globe are using 200 billion tax stamps per annum. In India, more than 22 States are using approximately 22 billion tax stamps. The success of Phygital tax stamps comes from their dual role in supply chain monitoring and visual authentication, for both enforcement authorities and consumers. Even at an early stage in their existence, tax stamps took on additional roles – albeit unintentionally - just by the fact of being attached to a product. Along with providing visible proof of tax payment, their very presence acted, to an extent, as a guarantee that the product was genuine and authentic. Furthermore, by being positioned over the opening of a tobacco package or alcohol bottle, they acted as an anti-tampering/anti reuse seal.

Success of Tax Stamps – Proven results

There are many examples which prove the significance of Tax Stamps role. In our neighboring country, Bangladesh, the illicit trade in cigarette was reduced from 20 per cent in 2000 to 1.2 per cent in 2009. In Turkey, Tobacco tax revenues rose by 31.5 percent within the first year of implementing the system, even though tax rates remained the same. In Indian scenario, according to various reports the usage of Tax Stamps has not only minimized the tragedies due to spurious liquor but have also substantially increased the excise revenue collection by more than 15-20 percent on year to year basis with proper enforcement. 

Role of Tax Stamps beyond collection tools - Recent Developments 

Another role that tax stamps are starting to assume is that of a carrier of serialised codes for item-level production monitoring and supply chain track and trace. Although it was perhaps only natural that tax stamps would never just be used for tax collection, their evolution has been accelerated by several recent global developments. One of these developments relates to the progressive, and sometimes dramatic increase in excise taxes, implemented by many governments in a bid to reduce consumption and raise revenues. As excise taxes have grown, so has the value of the stamps representing them. The new generation Phygital tax stamps carry robust, visible security features – much like those on a banknote – to distinguish them from fake stamps. Another driver of evolution in tax stamps involves the breakthroughs in data processing capabilities and mobile communications, which allow products to be marked in-line during production with their own unique codes, recorded in a database. These codes may then be used to verify the product in remote locations and provide key data on the source, destination, and authenticity. The ability of tax stamp issuers, brands and others involved in tax stamp programmes to monitor and record complex supply chain data in real time is something that could only have been dreamed of a few decades ago. But integration with technology has made it possible and extremely easy.

Challenges amongst State Excise Departments 

In India, State Excise Department faces various challenges such as: 

a) How to combat smuggling and illicit liquor? 

b) How to ensure fool proof labelling and supply chain? How to ensure consumer confidence? 

c) How to increase excise revenue and most importantly the problem of identification/authentication - How to differentiate fake liquor bottles from genuine? 

Amongst these, illicit trade in alcohol undermines sustainable economic growth. Excise duty which is an important source of revenue is continuously under threat from the practice of illicit trade. Considerable amount of money which could be used to benefit and support the government services of a country are being diverted to the pockets of criminals participating in illegal trading. However, more than the loss of tax revenue it could cost Government loss of image/goodwill. Collectively, it affects all the stake holders in society in various terms. 

While the industry and Government lose revenue & goodwill, it is the consumer who is impacted the most as illicit trade in liquor poses a serious threat to consumer health. Poor quality or spurious liquor can cause death and serious illness, as seen in connection with several incidents of hooch tragedy in India. According to various media reports, more than 250 persons died in India due to hooch tragedies in the year 2019.

Anti-counterfeiting solutions like TAX Stamps have always been an important authentication solution used by Government authorities to curb illicit trade, protect the consumer and to increase the excise revenue. However, the Excise Department needs to think about TAX Stamps as a tool beyond mere tax collection tools. It provides an opportunity with the State Excise Department for consumer & industry empowerment. The new generation Phygital Tax Stamps with technological innovation in security printing, serialized coding, data processing, and mobile communications, can be into sophisticated devices with additional roles that related to product authentication, supply chain security & data intelligence. This will ensure and help the State Excise Department in building its policy towards reducing consumption and more revenue. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Chander S. Jeena

The author is the Secretary of Authentication Solution Providers’ Association, Advisor to Tax Stamp & Traceability News, UK & Editor of The Authentication Times.

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