Key Questions Raised at Tax Stamp Webinar

In April, Reconnaissance International held a one-hour webinar to present its new review 'Tax Stamps & Traceability: A Market Analysis and Technical Update' to over 200 registrants.

The co-editor of the review, Nicola Sudan, was joined by its two main contributors: Michael Eads (ME) of Sovereign Border Solutions, and Richard Jotcham (RJ) of Axess Technologies.

Together, the three presenters took the audience through each chapter of the review, covering everything from the drivers behind the growth and evolution in excise tax stamps, to practical considerations for implementing tax stamp and traceability systems, to existing and new technologies for producing, securing and serialising tax stamps, to current tax stamp and traceability applications across the globe.

The presentation was followed by a lively Q&A session, tackling key questions related to today’s industry and the developments and challenges it is facing. This article describes some of those questions and how they were answered during the webinar, by Michael and Richard.

Q: What’s your opinion on smartphones as a mass verification tool for tax stamp applications, rather than specific devices reserved for a limited number of inspectors?

RJ: Smartphones are, for want of a better term, the flavour of the day, because most inspectors have them. Not only do smartphones have a built-in camera and computer but they can also connect to all kinds of other systems and applications.

So there is a terrific amount of interest and activity around smartphones throughout the whole of the document security community.

Now you asked how smartphones compare with other readers. I can tell you a story about when I gave a presentation in the United States a few years ago on readers, taggants and technology. One member of the audience, who was an inspector told me: ‘there is no way I am going to walk around with half a dozen different readers sticking out of each of my pockets’.

That comment is an important point in favour of using smartphones to replace all these different readers. Whether or not the smartphone itself evolves into something that is more user friendly, I don’t know, but I do believe it will continue to expand its role and importance in our industry.

Q: How can you make digital tax markings tamper-evident?

RJ: The only way to do this would be to take the data from the digital mark, and feed that into a data system, which would then send a message back confirming whether a particular product had been opened before or not.

But a significant problem with this method is that you are automatically assuming that the general public will go online and verify a product every time they open it.

So the answer to this question is that, yes, in theory you could make digital marks tamper-evident but I’m not convinced that this would work in practice.

Q: How effective is blockchain as a component of a comprehensive tax stamp and track and trace system?

RJ: Good question and one that many other people are also asking.

For those not familiar with blockchain, it involves taking a little chunk of data and closing it up into a box or block, which then gets sealed so it can’t be altered. That block is then fed into a network of blocks, within a distributed ledger system, from which it can be accessed.

So how effective is blockchain? Well, at this particular point in time I would say that it is still in its infancy. However a tax stamp is possibly a good opportunity for blockchain because of the number of different access points required for a tax stamp.

For example, there are the people who make the tax stamp, then the application of the tax stamp to the product, then the retailers and consumers, and then governments and the reconciliation process.

All of these different users have different requirements in terms of what they can access. Furthermore, there is the risk of fraud and people trying to get around the system at many points along the chain of users.

So I think my answer to this question is: I’m not convinced right now that blockchain is totally effective because it is still in its infancy. However, I do think it is extremely interesting and could be something we see a lot more of in the future.

Q: What is the best way for solution providers to approach government issuers of tax stamps if they want to propose their technology?

RJ: This is an interesting dilemma, particularly for technology companies that are trying to break into this market. In the old days, this was called back selling, which meant that you approached the end user and then tried to interest them in your product, hoping that they would then adopt it and it would get included in tenders etc.

This is hard enough to do with normal security documents, but I think that the tax stamp, because of all its extra levels, is even more complex.

So, my advice would be for solution providers to first ascertain what level of sophistication and scope a country is using (or seeking to implement) with regard to its tax stamp system, and which particular technologies and systems it has in mind.

Then they would need to review whether their technology is already being serviced by another method or another system, and how they could improve on what exists already, by maybe proposing a faster, or cheaper or more visible solution.

Finally, in order to actually get your solution implemented by a particular country – and unless you are a major company with a lot of resources – you do need to be having discussions with the established players, in order to form an eventual partnership. Because governments are looking for full solutions. So, even though they may seem very interested in your technology, they have to implement a system, not a single technology.

Q: Is there an equivalent alcohol treaty to the global WHO FCTC treaty and its Protocol to Eliminate Illicit Trade in Tobacco Products?

ME: Not that I know of. There are national bans, to one degree or another, on alcohol sales and consumption in certain countries. Other countries employ very high taxation rates to increase cessation.

For instance, I was recently in Egypt where the alcohol tax rate on beverages is about 400%. So you are paying more than New York prices in Cairo! And the US state of Utah is a dry state so there are certainly regulations in place to curb the consumption of alcohol. But I don’t think there is anything close to an international treaty to address the illicit trade of alcohol products.

The only international regulations pertaining to alcohol that I am aware of relate to IPR regulations from the World Trade Organisation, specifically with regard to the use of geographical indications.

The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS’) defines ‘geographical indications’ as indications that identify a good as ‘originating in the territory of a member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin’. So, for example, even if a wine is made in a Bordeaux style, but does not originate from the Bordeaux region, it cannot use the name Bordeaux.

Q: In the Southern African Customs Union (SACU) region, where most products come from South Africa, would it not be an ideal approach to have a regional system for track and trace that could cover both alcohol and tobacco products? Given that customs and excise revenues are shared collectively by all member states in this union, I wonder if implementing the same system in all five SACU countries (Botswana, Eswatini, Lesotho, Namibia, South Africa), would not be more effective than each state coming up with its own system.

ME: Excellent question. A track and trace programme for excisable goods would definitely assist governments in this region with their enforcement mission, given the sheer number of official and unofficial porous borders in the region.

You’re absolutely correct that a lot of the production of tobacco and alcohol products is coming from South Africa. One only needs to compare the import statistics from one country and the export statistics from another country to see that there are massive differentials.

We also see reports from the tobacco industry on a weekly basis saying that this region has the highest illicit trade on the planet, so a tax stamp and track and trace programme for the entire SACU region would be an excellent collaborative initiative, and better than each country doing its own thing, especially because the economies of these countries are so intertwined.

I’m not aware of any other revenue-sharing customs union on the planet so this is the ideal approach. But it would require significant political leadership and power to deal with the inevitable industry opposition that would result from attempts to implement such an approach.

Don’t miss our special offer to purchase the report

As a reminder, all those who attended the webinar are eligible to purchase a printed copy of the report for just £900 (instead of £1,350), or a printed copy plus PDF for a combined price of £1,350 (instead of £2,025).

In addition, Richard Jotcham – who was the researcher and writer for the technologies section of the report – is offering free online consultancy to all those who purchase the review – whether you attended the webinar or not. Richard can be reached at [email protected].

The special purchase price is valid for a limited time only so please visit estore.reconnaissance.net to order your copy, making sure you type in TSRWEBINAR when prompted for a discount coupon code in the ‘Cart’ page, followed by ‘Apply Coupon’. Remember that to use the Reconnaissance e-store you first need to be registered on the store, which you can do here.

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And for all those who missed the webinar, no problem! You can watch the entire recorded event here and download the presentation through this link.