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How to improve effectiveness of tax stamps

John Njiraini

An important event was recently held in Africa for the first time: The Kenya Revenue Authority (KRA), hosted the 2018 Tax Stamp Forum.

At the forum, important exchanges took place touching on the latest developments in tax stamp technologies and how these can be leveraged to help governments and society address challenges associated with counterfeit trade in products that pose risks to society and to tax revenues.

It is clear from recent experiences across the world, that digital technologies provide governments and businesses with tools that can help combat retrogressive practices including illicit trade and tax evasion.

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

Kenya has made strides in the utilisation of tax stamps in the fight against illicit trade and tax evasion. Tax stamps were first introduced in Kenya in 2003 initially covering tobacco products alone.

In 2007, coverage was extended to wines and spirits, a sector that had hitherto presented major challenges in tax management but also in the form of public health risks associated with illicit alcohol.

The interventions in the alcoholic drinks industry have possibly had the most impact particularly in terms of public appreciation of the benefits of tax stamping.

The tax stamp 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, plus field authentication of tax stamps.

Lately we have been experimenting with smart phone based authentication so as to rope in the wider public in enforcement activities, but the outcomes of this last aspect are still work in progress.

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

The measures that Kenya has taken especially in relation to 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 in tobacco products, including smuggling, illicit manufacturing and counterfeiting and the implementation of national laws to support enforcement.

Kenya has also taken leadership in coordinating African countries during the negotiation of the FCTC Protocol and provided technical support in this area to many Parties.

In 2014 and 2015 respectively, 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.

In the process of using tax stamps, Kenya has learnt a number of lessons that may serve as useful experience for other developing countries.

First, is the observation that while tax stamp technology is now well developed, its effectiveness especially in combating tax evasion, depends to a large measure on the extent to which, such technology is infused into other tax compliance processes.

There is need therefore to look at tax stamp systems not in isolation but as part of the holistic process of addressing tax compliance, and hence as part of the wider technology infrastructure built to support tax compliance.

The present practice where tax stamp systems are developed as standalone platforms, may not in the long run effectively 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 as well self-defeating.

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

The second point is that implementation of tax stamp programmes without requisite development of enforcement capacity will lead to less than optimal results. In our case, building of enforcement capacity has not moved at the pace expected and hence the results achieved have not been as impressive as would have been desirable.

I would therefore challenge tax stamp providers to place more emphasis on providing holistic solutions that include integrated technology platforms and organisational process and human capital development initiatives.

Thirdly, because of the nature and impact of excise taxation, schemes to control illicit trade and tax evasion will almost always result in significant resistance from those affected by such controls.

This probably explains why the implementation of tax stamp systems almost always brings about controversies globally including through sabotage schemes hatched by business cartels.

There is value therefore in tax stamp solution providers investing more in public education, jointly with government and progressive elements within the business community. —The writer is the Commissioner General Kenya Revenue Authority

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