Change tack to successfully eliminate counterfeit goods

The crackdown on counterfeit and illicit goods by the multi-agency team since its establishment on May 10 was a welcome relief to manufacturers, who have borne the brunt of the vice for a long time but, six months later, the trade continues to flourish.

One reason for the slow progress is that the team lacks the wherewithal to have the culprits expeditiously prosecuted and convicted, with obstacles such as counter-accusations and claims by defence lawyers that delay and often derail the course of justice.

CONVERSANT

To enhance the team’s performance, the Attorney-General, as the chief adviser to the government, should arm it with standard operating procedures to make its operations expeditious. Investigations should be watertight, clearing all the grey areas of its mandate to improve its veracity and effectiveness.

Secondly, the war should go regional — even global. The vice cuts across borders and, without the entire East African Community being on board, the government may not get the desired success. We must work with our neighbours on the logistic network support system.

Thirdly, make the team more conversant with the technical details of manufacturers’ intellectual property rights (IPRs). There are occasions when its agents have arrested and taken traders to court only to be challenged that the goods suspected to be illicit were actually legitimate.

LOOPHOLE

Business rivals have used this loophole to fight competitors by calling for the closure of their businesses. Many traders have been subjected to harassment, only for their merchandise to be found genuine after a long process of verification.

Fighting the counterfeit and illicit goods trade requires a multi-pronged approach to be successful. Regular raids, arrests and prosecution of suspects are not a deterrent since the high returns from the trade are worth the risk.

A paradigm shift is urgently required to deliver the much-needed fatal blow to the counterfeit and illicit goods trade. Though the renewed crackdown is bearing fruit, the government ought to focus more on the policies and laws that make illicit trade attractive, key among them reduction of taxes to bring them on a par with neighbouring countries.

LEGITIMATE

Industry players have, on many occasions, argued that Kenya’s high cigarette tax regime is the main cause of the increase in the counterfeit and illicit goods trade.

In 1994, Canada’s federal government cut excise taxes on tobacco products by half and several provinces followed suit. Quebec slashed excise tax on cigarettes by 71 percent (from $29.61 to $8.61 per carton of 200 sticks) and Ontario 67 percent ($28.85 to $9.65).

That year, legitimate cigarette sales shot up by more than 50 percent — the first increase in over 10 years. And between 1994 and 2001, illegal carton seizures dropped by 93.6 percent.

Notably, during the low tobacco tax period, seizures of illicit cigarettes fell and legitimate sales rose. The explanation for this is simple: As taxes fell, consumers switched to legitimate vendors; profits on illicit goods cigarette reduced, as did the supply.

REVERSED

The trend was reversed following the country’s tax increases as the supply of counterfeit tobacco products rose and legitimate sales fell. Legal cigarette sales dropped by 10 percent in 2002 and continued to fall, though at a slower rate.

But illegal carton seizures climbed, reaching their peak in 2009, when the Canadian authorities reported nearly a million cartons of illegal cigarettes seized — more than double the previous peak in 1994. It is evident that an increase in cigarette excise tax results in increased cases of counterfeit and illicit goods trade. This is the position local industry players have maintained since the 2011 introduction of a single-tier cigarette excise tax regime.

Rather than spend more on anti-counterfeit measures, the government should cut taxes on tobacco products to be on a par with neighbouring countries. This will not only increase sales for legitimate cigarettes, but also the excise tax collected.

HARMONISE

The government’s effort in fighting counterfeit and illicit goods trade is laudable. However, there is an urgent need for the harmonisation of excise tax within the region. Article 83 (2) of EAC Treaty 1999 obliges member states to “harmonise their tax policies with a view to removing tax distortions in order to bring about a more efficient allocation of resources within the community”.

That could be the permanent solution to the counterfeit and illicit goods trade menace in Kenya, and, indeed, the region.

Mr Kirimania is head of corporate affairs, Mastermind Tobacco Kenya Ltd. [email protected]