A Trade Environment Transformation Led by Georgia Revenue Service

In early October, the Georgia Revenue Service (GRS) co-hosted the Tax Stamp and Traceability Forum™ with Reconnaissance International to showcase the success of its local solution and discuss the latest developments in the industry.

Authorities from large parts of the world attended the conference to acquire knowledge on the state-of-the-art solution implemented in Georgia, share best practices, and discover opportunities to upgrade their systems.

Zedazeni, a leading Georgian producer of beer and soft drinks, kindly opened the doors of a beer factory equipped with the secure direct marking technology implemented in the country. It was an opportunity for authorities to dive deeper into the operational aspects of this secure track and trace solution and see direct marking in a live environment, before starting the conference programme.

Today’s successful, secure track and trace solution in Georgia results from many years of dedicated work to ensure a legitimate trade environment involving significant GRS reforms. This article will explore these reforms, introduced for the fiscal marking of excisable goods.

Background

Following a fundamental change in the political environment in Georgia, brought about by the collapse of the Soviet Union, the government decided to implement a system to tackle illicit trade, given that it was regularly encountering counterfeited or foreign tax stamps on cigarette packages, as well as tax stamps on cartons instead of individual packs (Shalutashvili et al, 2007).

According to a World Bank report on confronting illicit tobacco trade, ‘a 2002 survey revealed that only two-thirds of the cigarettes on the market had the correct excise mark, with only one- third of imported cigarettes falling into that category’.

Furthermore, it could be seen that more than half of the country’s domestically produced cigarettes were coming from facilities that had not been registered with the local tax authorities, thereby significantly impacting the revenue collected by GRS.

In 2004, the new government introduced substantial reforms for economic revival, while addressing corruption and widespread tax evasion. In the years that followed, GRS implemented many innovative transformations, with new systems to control VAT (including electronic cash registers, e-invoicing, e-waybills, and e-VAT refunds) and excise tax.

In 2007, the World Bank named Georgia the world’s number one economic reformer, and in 2014, Georgia was ranked 50th by Transparency International in the Corruption Perception Index (up from 113th in 2004). Georgia was on a mission to bring fundamental change to the country.

In 2011, GRS decided to replace its legacy tax stamp for excisable goods with a secure track and trace solution that extended to a more comprehensive group of products. A competitive international tender was launched, to which multiple companies responded, and in January 2012, SICPA was awarded a five-year contract, with a go-live in 2015.

The system deployment went through several phases, starting with beer, which had already gone live in April 2012, followed by tobacco, alcohol, soft drinks, and water. Since then, significant benefits have been observed across all these product categories, and the overall trade environment has improved significantly.

The Head of the Healthcare Committee of the Georgian Parliament reported that by 2017, the illicit cigarette market share was less than 3% of total consumption, a remarkable reduction from the high levels experienced in the previous decade. This not only substantially benefited GRS, but it directly impacted the country’s citizens. Despite initial resistance by manufacturers, there is now broad acceptance of the system, as the reduction of illicit trade eventually increased the market share of compliant actors.

In 2021, in anticipation of the end of the contract, GRS relaunched a competitive procurement process, starting with a consultation phase, to which several providers worldwide responded. This allowed GRS to update and fine-tune the tender, issued a few months later. The new contract was awarded again to SICPA for ten years, encompassing an updated version of the system called SICPATRACE Evo®.

The system today

The system currently covers 236 local manufacturers and 291 importers. Production monitoring equipment is installed on 53 production lines across the territory, ensuring fiscal marking and traceability of 873,516,560 excisable products annually. Most of the volume is represented by beer, soft drinks, and water packaged in different types of bottles and cans. These are marked using the secure direct marking solution illustrated below.

The solution consists of a 2D barcode carrying a unique and encrypted identifier for each product item, printed using an industrial inkjet printer on the bottle’s cap or the bottom of the can. The ink used is protected from copies through various markers that can be authenticated in the field through mobile devices and in a forensic laboratory.

The solution is tailored to bottles and cans insofar as enhanced tax stamps do not always fit such products’ packaging and marking process. It is connected to a central database, providing GRS with real-time visibility of production activities. It also includes anti-tampering features that automatically monitor production lines in order to alert the GRS of issues impacting the secure marking system.

The new version of the solution is fully integrated with the GRS taxpayer portal. GRS has assigned a dedicated team to operate the track and trace system, focused on reviewing and approving orders of tax stamps. A group of seven is also responsible for monitoring market compliance, from the comfort of their office, using analytical tools that identify trends and variations. And 100+ field inspectors regularly visit factories, warehouses, and retail stores to ensure that all products are correctly marked and activated.

50 local employees at SICPA’s subsidiary in Georgia support the GRS in system administration tasks, equipment maintenance, and secure storage and distribution of tax stamps and security inks. One of the critical responsibilities of the local SICPA team is to safeguard business continuity by, for example, ensuring a minimal response time for the system to become operational again in case of an issue.

To conclude, the example that GRS has been able to set for authorities worldwide is significant. It demonstrates the importance of running an industry-independent programme with a long-term partner to achieve true success and compliance with the law.

GRS’ dedication to bringing reforms to the trade environment and increasing revenue collection has proven successful. The showcasing of these results during the Tax Stamp & Traceability Forum provided an opportunity to inspire other authorities to take a similar approach by implementing a solution compatible with high-speed, challenging production environments.