Stamps can curb illicit trade, tax evasion

A very important event was recently held in Africa for the first time: Kenya, more specifically, the Kenya Revenue Authority (KRA), was honoured to host the 2018 Tax Stamp Forum.

The forum saw important exchanges touching on the latest developments in tax stamp technologies and how they can be leveraged to help in addressing challenges associated with counterfeit trade, which poses risks to society and tax revenues.

Experiences across the world show that digital technologies provide governments, businesses and society, in general, with potent tools that can help to combat retrogressive practices, including illicit trade and tax evasion. Kenya has made strides in that.

DIGITAL REVOLUTION

Tax stamps constitute an important component in this digital revolution by not only providing visual evidence of authenticity, but also offering easy-to-use authentication mechanisms that can readily empower the public to join enforcement initiatives.

Tax stamps were introduced in Kenya in 2003, initially on tobacco products. In 2007, coverage was extended to wines and spirits, a sector that had hitherto presented major challenges in tax management and public health risks due to illicit alcohol. The interventions in the alcoholic drinks industry have possibly had the most impact, particularly in appreciation of tax stamping.

The programme was upgraded in 2013 by introducing track and trace capability through the Excisable Goods Management System (EGMS), which enables production level monitoring of manufacturer operations, and field authentication of tax stamps. Experiments with smartphone-based authentication are ongoing.

CONSISTENT GROWTH

EGMS has been pivotal in sealing loopholes and delivering consistent growth in excise revenue, besides deterring the proliferation of illicit alcohol production.

The measures Kenya has taken, especially in tobacco control, are in line with Article 15 of the WHO Framework Convention on Tobacco Control (FCTC) as it relates to the elimination of illicit trade and the implementation of national laws to support enforcement.

Kenya has also taken leadership in coordinating African countries during the negotiations of the FCTC Protocol and provided technical support in this area to many parties. In 2014 and 2015, Kenya won international awards from the Global Tax Stamp Forum and the WHO in recognition of the ground-breaking initiatives implemented through our EGMS platform, which KRA plans to continue upgrading in order to meet emerging challenges.

TAX STAMPS

In using tax stamps, Kenya has learnt useful lessons. First is that, while tax stamp technology is now well developed, its effectiveness, especially in combating tax evasion, depends largely on the extent to which it is infused into other tax compliance processes.

There is, therefore, a need to look at tax stamp systems as part of the holistic process of addressing tax compliance and, hence, as part of the wider technology infrastructure built to support compliance.

The current practice, where tax stamp systems are developed as standalone platforms, may not, in the long run, deliver the kind of holistic solutions required for tax administration. After all, detecting evasion of excise taxes without having commensurate interventions to address other tax streams equally affected is not only narrow minded, but also, possibly, self-defeating.

ENFORCEMENT CAPACITY

There is, therefore, a case for strong partnerships between tax system developers and those involved in developing tax stamp systems for customers to get full value.

Secondly, the implementation of tax stamp programmes without requisite development of enforcement capacity will lead to less-than-optimal results. In our case, capacity building is not at the expected pace.

I challenge tax stamp providers to put more emphasis on holistic solutions such as integrated technology platforms and organisational process and human capital development initiatives.

EXCISE TAXATION

Thirdly, because of the nature and impact of excise taxation, schemes to curb illicit trade and tax evasion will almost always result in significant resistance from those affected. This probably explains why implementation of tax stamp systems almost always brings about significant controversies globally, including sabotage schemes hatched by cartels. Tax stamp solution providers should invest more in public education, jointly with the government and the business community.

KRA intends to deepen its relations with key players in the excise product control chain and continue active participation in global tax stamp discourse.

Mr Njiraini is Commissioner-General, Kenya Revenue Authority (KRA). [email protected]