Authentication and Inspection Practices: What Really Happens in the Field?

From left: Francisco Mandiola, Milagro Mendoza, Nelson Bright Atsu, Rajendra Gupta Ramnarain.

Panama

Panama uses approximately 3 million tax stamps produced by local printers for domestic and imported liquor. No tax stamps are used on cigarettes, even though a 2021 Nielsen study found that 87.9 cigarettes out of every 100 sold in Panama were contraband, originating mainly from India and Korea. Given the country’s very low smoking levels, the question arose as to where all these cigarettes were ending up. Probably in neighbouring countries.

The alcohol tax stamps consist of an identifiable design as well as a QR code, but this code does not link to any further information, and the design is not subject to authentication or widely communicated to the public. In addition, the current labels are not humidity-resistant, which means they easily come unstuck from the product in Panama´s constantly warm climate.

As a result, Panama has been trying to improve the design and substrate as well as implement a better use of security inks to resolve current authentication issues, until such time as a proper track and trace system can be implemented. Although advances have been made towards such implementation, no green light has been given yet.

In the meantime, Panama’s authentication practices are based on ‘suspicion of non- payment of taxes’, involving physical and paper (invoice) inspection – which is not ideal. The DGA believes there needs to be at least Level 3, covert authentication systems in place, not only on cigarettes and liquor but also (and even more importantly) fuel, which is a large revenue source for the country. Panama has 19 fuel distribution centres in duty free zones, which require tracking and tracing to ensure that the fuel coming into Panama is being re-distributed appropriately.

Ghana

Ghana produces over 90 million tax stamps per year, printed locally by De La Rue, and distributed via local partners to producers. The stamps are applied to cigarettes, alcohol, soft drinks… and soon textiles.

Tax stamps have evolved not only to control counterfeit and other illicit products, but also to verify under-declaration of taxes and, ultimately, increase revenues. Nelson mentioned that the introduction of tax stamps in Ghana led to a significant jump in tax revenues, which subsequently spurred the expansion of the programme to other products.

Imported products are affixed with tax stamps at centralised centres controlled by customs, prior to being released in- country. Locally manufactured goods, by law, must carry a stamp before leaving the factory.

Compliance checks in the market are carried out by GRA inspectors who use four levels of authentication to verify tax stamps, including magnification, UV light, specialised inks, and smartphone scanning. There are two levels of smartphone usage: one for the public to authenticate the stamps when purchasing a product, and one for enforcement officers.

While the smartphone has been very helpful in providing the GRA with compliance and enforcement data, the authority also relies on information gathered from manufacturers’ monthly tax stamp usage reports, which it reconciles with the data collected through smartphones and inspectors.

Ghana believes that the design of its stamps makes them very difficult to counterfeit, not only due to their security features, but also because of their unusual size. There have been some attempts at counterfeiting, but a typical mistake made by counterfeiters is to produce fake stamps in a standard size.

The GRA believes in communicating as much information as possible to the public so they can easily authenticate on their own. One positive aspect of Ghana’s public app is that it allows citizens to send a complaint, including a photo of a non-compliant product, directly to the tax authority.

Mauritius

In Mauritius, cigarettes have been carrying tax stamps since 2008, liquor since 2013, and beer and wine since 2022. The current provider is Holostik, although Mauritius holds public tenders on a regular basis and has been happy to switch between different providers to ensure its needs are being met.

Given its small size (2,000 km2 and 1.3 million people) the country does not have an automated tax stamp application system in place. Rather, the stamps are affixed manually to products at retail level. The stamps carry both overt and covert features, together with a unique QR code.

The main authentication activities in Mauritius are performed by customs and excise officials. As it is a small country, these officials are easily able to make regular visits to retail points. The MRA prefers this physical enforcement presence at retail level, as it has proven highly effective in ensuring tax stamps are being used and affixed properly.

In the past, officials were equipped with hand-held devices to authenticate stamps, with good results, but now they have moved to smartphones. Like the hand-held devices, the smartphones are government-owned and monitored, and the authentication software is exclusive to these phones.

Additionally, the MRA relies on laws obligating each retailer to provide a monthly report of stamps purchased (initial stock), stamps used and on what products, and stamps left at month-end. At the end of the year, the MRA reconciles retailer reports versus its own accounting of purchased and returned (unused or damaged) stamps.

With regard to cigarette stamps, the MRA waives up to 1% of unsubstantiated stamps during reconciliation, because there are many stamps circulating for this product group, and it is more difficult to trace damaged ones. All other stamps not accounted for during the annual reconciliation are subject to a fine corresponding to the maximum excise rate for the product in question, which helps to motivate compliance.

The public does not really get involved in authenticating tax stamps in Mauritius, and no public verification app is available. However, the MRA does operate a portal for citizens to lodge complaints, and it is these complaints that have often alerted the MRA to products being sold without excise stamps.

While the MRA has been able to achieve good levels of compliance to date, and has yet to come across any counterfeit stamps, it is currently evaluating the introduction of a comprehensive track and trace system so it can monitor the ‘behaviour’ of taxable products.