Combating illicit tobacco trade is an issue that is being seriously addressed by not only those in the tobacco industry but also governments around world and international bodies such as World Health Organisation (WHO) and Interpol. According to an estimate by WHO, eliminating the illicit trade in tobacco would generate an annual tax of US $ 31 billions for governments. In Indian scenario, as per media sources, illegal Cigarette trade comprising international smuggled and locally manufactured tax-evaded cigarettes accounts for as much as 1/4th of the Cigarette Industry in India. According to studies by FICCI CASCADE (Committee against Smuggling and Destroying Economy), the grey market in the tobacco industry has grown significantly since 2010 and has grown from 15.7 percent in 2010 to 20.2 percent in 2012 - an increase of 28.7 percent. Government of India alone bears the losses INR 13 billion per annum because of illicit tobacco trade. Based on the current tax rates on cigarettes, it is estimated that the Government loses Rs. 13,000 crores per annum because of illegal cigarette trade.Taking a positive step in curbing illicit tobacco trade, on 2-May-2018, The Union Cabinet Chaired by Prime Minister Shri Narendra Modi has given approval to accede to the Protocol under World Health O rg a n i z a t i o n ( W H O ) F r a m e w o r k Convention on tobacco control to eliminate illicit trade in tobacco products. This is a welcome step and in view of this development, the article review the issue and solutions for combating it.

1. 1
COVER STORYIssue 34
Introduction:
ombating illicit tobacco trade is an
Cissue that is being seriously
addressed by not only those in the
tobacco industry but also governments
around world and international bodies such
as World Health Organisation (WHO) and
Interpol. According to an estimate by
WHO, eliminating the illicit trade in
tobacco would generate an annual tax of US
$ 31billionsfor governments.
In Indian scenario, as per media sources,
illegal Cigarette trade comprising
international smuggled and locally
manufactured tax-evaded cigarettes
accounts for as much as 1/4th of the
Cigarette Industry in India. According to
s t u d i e s b y F I C C I – C A S C A D E
(Committee against Smuggling and
Destroying Economy), the grey market in
the tobacco industry has grown
significantly since 2010 and has grown
from 15.7 percent in 2010 to 20.2 percent in
2012 - an increase of 28.7 percent.
Government of India alone bears the losses
INR 13 billion per annum because of illicit
tobacco trade. Based on the current tax
rates on cigarettes, it is estimated that the
Government loses Rs. 13,000 crores per
annumbecauseofillegalcigarettetrade.
According to Devchandan Mallick,
Research Analyst – Drinks & Tobacco at
Euromonitor International, India is the
third largest market in the world in terms of
illicit cigarettes sales. We estimates total
illicit cigarette sales in 2016 was at 24.9
billion sticks in 2016, more than 20 percent
of theoverallcigarettevolumesales.
India’s Policy to Combat Illicit
Trade of Tobacco Products
Taking a positive step in curbing illicit
tobacco trade, on 2-May-2018, The Union
Cabinet Chaired by Prime Minister Shri
Narendra Modi has given approval to
accede to the Protocol under World Health
Organization (WHO) Framework
Convention on tobacco control to eliminate
illicit trade in tobacco products. It will be
applicable to both smoking and chewing or
smokeless tobacco (SLT) forms as
negotiated and adopted under Article 15 of
the World Health Organization Framework
Convention on Tobacco Control (WHO
FCTC). Indiais apartytoWHO FCTC.
What is FCTC Protocol?
The WHO FCTC is a treaty adopted by the
56th World Health Assembly held in
Geneva, Switzerland on 21 May 2003
developed in response to the globalization
of the tobacco epidemic. The illicit tobacco
trade is regulated under Article 15 of the
WHO FCTC. It spells out supply chain
control measures that must be adopted by
the parties viz. licensing of manufacture of
tobacco products and machinery for
manufacturing of tobacco products, due
diligence to be kept by those engaged in
production, tracking and tracing regime,
record keeping, security; and measures to
be taken by those engaged in e-commerce,
manufacturing in free-trade zones and
duty-freesales.
COMBATING
ILLICIT TOBACCO
TRADE;
COLLABORATIVE
SOLUTIONS FOR
INDIA
Table: Illicit Tobacco Trade in India
* Indirect taxes represent excise duty
and VAT on domestic manufacture and
import duty and VAT on imports, whilst,
Direct taxes represent corporate income
tax.
F. Y. Loss of Sales Loss of Revenue
to Industry to Government
(Direct +
Indirect Taxes*)
2013-14 INR 13,130 INR 9,139
2011-12 INR 8,965 INR 6,239

2. Fig: Kenya Revenue Authority Stamp Checker App
explaining how to check authenticity of tax stamps
on applications alcohol, cigarette,
soft drinks and beer.
FCTC requirements – Is Tax
stamps and Authentication
measures
FCTC requires the implementation of
systems to track and trace tobacco products
throughout the supply chain by means of
technology such as tax stamps (either paper
or digital), bar codes and radio-frequency
identification(RFID).
Tax Stamps
Often referred as Tax stamp, excise stamps,
excise adhesive label, banderol etc it is a
stamp affixed to certain products or
documents to indicate that a required tax
has been paid. Tax stamps serve two
purposes. One is to provide a record of
payment of tax i.e. tracking of cigarette
packs throughout their distribution would
enable tax authorities to ensure proper tax
collection. The other is to provide evidence
that the stamp, and hence the product to
whichitisaffixed,isgenuine.
The use of tax stamps not only ensures that
tax payment records can be kept but also
provides assurance that the products they
are affixed to are genuine.According to the
Kenya Revenue Authority (KRA), excise
revenue grew by more than 28 percent in
the 2015/16 year to almost KES 49bn
($485m) following adoption of the secure
QR code tax stamps. The same period also
saw domestic excise revenue grew by 43
percent, contributing an additional KES
8bn ($79m) to the country's exchequer and
signalling the highest growth ever recorded
in the country's history of excise collection
– strong evidence of the enhanced stamp
programme's success. Moreover, since
implementation between 2013 and the
present day, excise revenue has increased
by 82 percent, enabling more than KES
200bn ($2bn) to be recovered from KRA
projectsprogrammes.
While, tax stamps could be an answer for
cigarette and bidis, the chewing tobacco
sectorcanused varioussolutionsincluding
 Holographictaggerfoilfor tinboxes
 Holographicstripe
 Holographicpouchfor gutkhaindustry
 Re-sealablelabelsfor loosetobacco
 High security paper label with security
hologram
 Completeholographicsolutions
In recent years, many governments (for
example, UAE (see news also on page no
2), Ghana, Kenya) having adopted tax
stamps to reduce the risks of counterfeit
stamps, monitor domestic producers more
efficiently, and increase the efficiency in
information flow. Even all most, all Indian
neighbouring countries (Bangladesh,
2
COVER STORYIssue 34

3. COVER STORY
3
Issue 34
Bangladesh
Year of Introduction - 2002
Benefit
As a result, illicit trade in cigarette was reduced from 20 per cent in 2000
to 1.2 per cent in 2009. Tax banderols were also introduced on bidis. The
banderols were almost long enough in size to wrap around the entire pack.
Then in 2016, the tax stamp programme was upgraded to include five
types of stamps and banderols for cigarettes and bidis, as well as stamps
for soap products. Currently, about 11 percent of revenue earned by the
National Board of Revenue comes from the tobacco sector, which is quite a
significant amount compared to the single-digit percentages of many
other countries.
Phillipines
Year of Introduction - 2014
Benefit
Bureau of Internal Revenue (BIR) issued stamp with a dimensional size of
23 millimeters (mm) by 43 mm containing multi layered security features
and an IRSIS - assigned Unique Identifier Code and a Quick Reference
Code containing information pertinent only to the cigarette container (e.g.
pack) to which the IRS is affixed. The IRS comes in six different color
designs according to whether the cigarettes are packed by hand or by
machine (with colors for high or low tax bracket), for locally manufactured
cigarettes or imported cigarettes with different colors (for high or low tax
bracket) or for export. An IRS is usually located on the top seal or closure
of cigarette packs.
Nepal
Year of Introduction - 2003
Benefit
Nepal introduced tax stamps on tobacco in 2003 on cartons. Further it
enhanced the systems and started using tax stamps on cigarette packets,
whilst, on chewing tobacco, it is still used on carton boxes.
Pakistan
Announced
To be implemented in 2019
Fig: Example of Tax Stamp Programmes in Neighbouring Countries:
Lesson to be learnt
Indonesia
Year of Introduction - 1970
Benefit
Indonesia is among the world's fastest-growing market for tobacco
products, partly due to cheap prices of cigarettes in the country with a
population of over 250 million. The government expects to secure 147.59
trillion rupiah (10.071 billion U.S. dollars) revenues from cigarette tax by the
year-end. Approximately 18 billion stamps for all tobacco products are
currently in usage.
Vietnam
Year of Introduction - 1989
Benefit
Policy resulted in an increase in government revenue of VND 300–500
billion (US$ 18.75–31.25 million) annually.

4. COVER STORYIssue 34
4
Nepal, Sri-Lanka and announced in
Pakistan) are using them. Pakistan, Kenya,
Morocco, Brazil andArmenia, among other
countries that already impose excise tax on
sugary drinks, have implemented, or are in
the process of implementation, systems like
this – systems that originated in tobacco
and alcohol tax stamp programmes but that
are now being extended across other
product sectors. Today across the globe, 81
countries are using approximately 130
billioncigarettetaxstamps.
European Union Doing
To tackle illicit trade, the European Union
(EU Tobacco Products Directive
( 2 0 1 4 / 4 0 / E U ) p r o v i d e s f o r t h e
establishment of an EU-wide track and
trace system for the legal supply chain of
tobacco products (article 15), as well as a
system of security features to help detect
illicit products (article 16). The European
Union has taken a big step forward in
combating the illicit trade in tobacco
products by ensuring that tobacco products
in the EU are easily traceable with a unique
identifier for each product. The track and
trace system and the security requirements
should be in place by 20 May 2019 for
cigarettes and roll-your-own tobacco and
by 20 May 2024 for all other tobacco
products (such as cigars, cigarillos and
smokeless tobacco products). Under the
security features system, all unit packets of
tobacco products placed on the EU market
will be required to carry a tamper-proof
security feature composed of visible and
invisible elements, enabling authorities and
consumerstoverifytheirauthenticity.
Companies operating in smokeless tobacco
space will need to strengthen supply chain
monitoring system in order to successfully
implementthisregulation.
Cigarettes companies operating in India are
very limited and may easily be able to help
the government in enforcing this
regulation. Proper monitoring of supply
chain and distribution should help in
controlling illicit tobacco consumption.
Increase in information sharing between
various stakeholders and regulatory
authorities will lead to better tracking of the
illicit tobacco trail and curtail illicit
tobacco. This regulation will be easy to
implementinthecigarettescomparedtothe
highly fragmented market of smokeless
tobacco, says, Devchandan Mallick,
Research Analyst – Drinks &Tobacco at
EuromonitorInternational.
Whilst, Indian Government can benefit of
tax stamps from learning of neighbouring,
these are not something which is not new to
country. Tax stamps (Excise Adhesive
Labels) are already used on alcohol. tested
and implemented successfully on alcohol
by State Excise Department. Although, the
application is different, the central
government authorities take benefit of
tested and implemented solutions from
State Excise Departments. Today, more
than 22 States (including UnionTerritories)
in India are using approximately 20 billion
taxstampsonliquorbottlesperannum.
According to various reports and
authentication trade body (ASPA), “the
usage of authentication solutions in these
States like Tamilnadu, Uttar Pradesh,
Karnataka, Madhya Pradesh, Puducherry,
Chhattisgarh etc. has not only minimized
the tragedies due to spurious liquor but
have also substantially increased the excise
revenue collection by more than 15-20
percent on year to year basis”. A
comprehensive approach to tobacco tax
stamping could be an important tool in
reducing illicit trade and revenue loss in
I n d i a . A p p l y i n g t a x s t a m p s o r
authentication solutions (combining
physical + digital) to all tobacco products in
country will make an important impact on
reducing illicit trade and further reduce
smoking and associated health care costs as
well as recoup lost revenues from illicit
trade.
Conclusion
photo courtesy: De La Rue

5. COMBATING ILLICIT
TOBACCO TRADE;
COLLABORATIVE
SOLUTIONS FOR INDIA
The Official newsletter of Authentication Solution Provider's Association (ASPA) Apr - Jun 2018 | Volume 12 | Issue 34
CELEBRATING
YEARS OF
AUTHENTICATION
1998-2018