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Pakistan case sets “dangerous precedent” for tobacco track and trace systems

10 December 2019

A respected industry trade body has called for greater scrutiny of contract awards for tobacco track and trace (T&T) systems in the light of an ongoing situation in Pakistan.

The Pakistan tender award for a T&T system for nicotine-based products has been challenged in the Islamabad and Karachi high courts, with several bidders lodging formal complaints about the way the process was subverted and the way in which their bids were evaluated. Following a protracted process, the country’s Federal Board of Revenue (FBR) eventually awarded the contract to the National Radio & Telecommunication Corporation (NRTC), which is using a T&T system developed by a company, Inexto, with close ties with the tobacco industry.

The Islamabad High Court (IHC) put implementation on hold and ordered the FBR to submit a report on the granting of the tender to NRTC before the next hearing – a complaint by one of the bidders, the NIFT consortium – takes place on December 10.

The International Tax Stamp Association (ITSA) has welcomed the decision by the IHC and called for the original FBR decision to be overturned, claiming it would set a “dangerous precedent” by deeming acceptable the heavy influence of tobacco firms on T&T systems.

Juan Carlos Yañez Arenas, Chairman of ITSA, said: “There needs to be further scrutiny of this case, which could have major ramifications for the implementation of tobacco T&T systems around the world. Under the obligations of the World Health Organisation’s Framework Convention on Tobacco Control (WHO FCTC) Protocol, these systems are supposed to be independent and therefore free of industry influence. However, Inexto’s preferred T&T is based on Codentify, a system originally developed by multinational cigarette manufacturer Philip Morris International and used by major tobacco firms.

“WHO has consistently warned countries against using Codentify and Inexto systems for tobacco track and trace purposes. This sentiment has been echoed in a report by the Framework Convention Alliance (FCA), which has deemed Inexto’s system unfit for purpose on the basis that it is too closely tied to the needs of the industry and does not adequately meet Article 8.12 of the Protocol.* 

“It also seems questionable that the FBR amended the tender process after meeting with tobacco industry representatives shortly before the tender process was completed. This appears to contravene Article 8.13 of the Protocol, which stipulates that revenue authorities should limit their contact with the industry “to the extent strictly necessary”. It 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.

“All of this may help to explain why the FCTC Secretariat, other public health bodies and independent and academic experts are so dead set against parties using Inexto to meet their Protocol obligations. If the IHC allows the FBR’s original decision to stand, what does this say about Pakistan’s commitment to ratifying the Protocol? More importantly, what message does this send out to other countries?

“Our concern is that if this transgression is allowed to pass and Pakistan, as a party to the FCTC Protocol, is able to implement the Inexto system via the NRTC, this runs the risk of setting a dangerous precedent for other parties to the Protocol to follow suit. If this happens, it calls into question the whole point of the Protocol.”

ITSA is urging all countries to follow Protocol guidelines and commit to the implementation of secure, independent T&T systems that are untainted by the tobacco industry. The association believes this is the most effective way to combat fraudulent trade of cigarettes, protect human well-being and help revenue authorities increase excise taxes.

ITSA was established to promote the benefits of tax stamp and traceability programmes and best practice within the sector. Secure tax stamp and T&T systems monitor the location and movement of goods throughout the supply chain, from manufacture to point-of-sale.

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.

* Article 8.12 of the Protocol that states that ‘obligations assigned to the Party shall not be performed by or delegated to the tobacco industry.’’

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