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ITSA warns against industry influence on tobacco track and trace systems

06 November 2019

A leading trade body has expressed concern over a recent decision by the Pakistan revenue authority to award a tender for a tobacco track and trace (T&T) system to an organisation with close ties to the tobacco industry.

The International Tax Stamp Association (ITSA) says the decision to award the contract to the National Radio & Telecommunication Corporation (NRTC) contravenes the obligations of the World Health Organisation’s Framework Convention on Tobacco Control (WHO FCTC) Protocol, which sets out a clear strategy for the implementation of comprehensive, industry-independent T&T systems for tobacco. Given that the NRTC’s T&T solution is provided by a company (Inexto) that depends on the tobacco industry for almost all of its revenue and that promotes the use of the industry’s own Codentify technology for T&T, there is a clear case here of Protocol transgression, warns the association.

ITSA, which promotes the benefits of tax stamp and traceability programmes and best practice within the sector, has now called on the WHO and NGOs around the world to reaffirm their commitment to ensuring that these systems are free from the influence of industry. Secure tax stamp and T&T systems monitor the location and movement of goods throughout the supply chain, from manufacture to point-of-sale.

The case in Pakistan arose when the country’s Federal Board of Revenue (FBR) issued a tender for the implementation of a tobacco T&T system. A week before the tender closed, a lobbying meeting took place between FBR and tobacco firms, shortly after which the FBR changed the tender selection procedures and criteria to place greater importance on price and less emphasis on technical qualifications.

Eleven companies applied, out of which nine qualified, including NRTC, which was subsequently disqualified for not having used the correct method for expressing its price. But the decision was reversed after the company filed a complaint with the FBR grievance committee, and NRTC (and therefore Inexto) was eventually awarded the contract.

Juan Carlos Yañez Arenas, Chairman of ITSA, said: “This case highlights the heavy influence that the tobacco industry continues to have on certain governments around the world. Inexto derives almost all of its revenues from the industry, so can hardly be said to be operating from a position of independence or neutrality.

“The FBR took the decision to ratify the FCTC Protocol but in practice does not seem willing to adhere to the principles set out in it, as is being highlighted by NGOs who have expressed their concerns.

"Article 8.13 of the Protocol stipulates that revenue authorities should limit their contact with the industry “to the extent strictly necessary”. This clearly has not happened in this case; it is concerning that a meeting between tobacco industry representatives and the FBR took place shortly before the tender process was completed. This is also at odds with Article 5.3 of the Protocol, which requires governments to protect tobacco control policies from commercial and other vested interests of the industry.

“We want to see countries follow FCTC Protocol guidelines and commit to secure, independent T&T systems that are untainted by the tobacco industry. Inexto’s preferred T&T is Codentify, a system originally developed by multinational cigarette manufacturer Philip Morris International and used by major tobacco firms. This calls into question the efficacy of the system and whether it can truly achieve what we believe it should do – that is, combat fraudulent trade of cigarettes, protect human well-being and help revenue authorities increase excise taxes.

ITSA also criticized the apparent lack of transparency in the tender process, which led to some companies issuing formal complaints after being disqualified on technical grounds that appeared spurious.

Juan Carlos Yañez Arenas said: “Companies that may have had better credentials than NRTC and Inexto were eliminated from the process. The FBR seemed to make cost the overriding consideration; it was therefore no coincidence that NRTC, which submitted the lowest price bid, won the contract.

“The process also calls into question the efficacy of the technical evaluations, which were reduced to a simple yes/no process and subsequently finalized within a couple of days – an impossibly short time to have evaluated the large volume of documentation provided.

“The quality of a T&T system should always be of paramount importance – a cheap system is expensive if it does not work. Tax stamps are an ideal bearer of the digital information.”

Many tax stamps today contain a combination of special designs, multiple security layers, a unique serial number and encrypted codes that make them almost impossible to counterfeit. More than 150 revenue agencies (national and state governments) globally use tax stamps to collect valuable tax duties and excise payments, involving the worldwide production of some 140 billion stamps annually. As well as providing visible proof of tax payment and revenue collection, tax stamps have also taken on product authentication, anti-tampering and track and trace applications.

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