In a rapidly evolving excise landscape in which counterfeit goods and tax evasion pose major challenges, the incorporation of both physical and digital elements on tax stamps has emerged as a critical strategy for governments and businesses alike. Leveraging the strengths of traditional physical security measures while integrating advanced digital technologies, the ‘phygital’ approach enhances traceability, authenticity and compliance.
Physical, Level 1 security features on tax stamps – such as holograms, optically active ink, and tamper-evident adhesives – serve as the first line of defence against counterfeiting. These elements are designed to be hard to replicate and provide immediate visual verification of a product’s legitimacy.
For example, tamper-evident adhesives are crucial because they prevent the reapplication of genuine tax stamps to illicit products. This aspect is particularly important for high-risk items like alcohol and tobacco, where loose or easily removable stamps can indicate potential fraud.
A second line of defence comes from Level 2 and 3 features such as polarising inks, thermochromic ink, and taggants detected by inspectors with dedicated devices.
Physical features are key to creating a deterrent against counterfeiting. The complexity and cost of replicating them often outweigh the benefits for counterfeiters, thereby reducing the appeal of such crime.
The International Tax Stamp Association (ITSA) emphasises the importance of observing best practices in physical security to maintain the integrity of tax stamps, stressing that even seemingly simple elements like adhesives play a significant role in preventing misuse.
Digital technologies complement physical security features by adding layers of traceability and verification that are difficult to bypass. One of the most prominent digital features used today is the 2D barcode. These codes can store a vast amount of information and, when scanned, provide instant access to a product’s digital history, including its origin, tax status and movement through the supply chain.
The integration of digital elements like 2D codes and blockchain technology allows for real-time monitoring and data collection, which can significantly enhance the efficiency of tax collection and enforcement.
For example, Uganda’s implementation of digital tax stamps has resulted in a substantial increase in tax compliance and revenue. By using a combination of digital stamps and electronic invoicing systems, Uganda has seen a 39% increase in excise duty and VAT collections, demonstrating the effectiveness of digital solutions in enhancing tax administration .
The combination of physical and digital elements creates a robust system that leverages the strengths of both approaches. Physical security features provide immediate, on-the-spot verification, while digital elements ensure long-term traceability and data integrity. This synergy is crucial in creating a multilayered defence against counterfeiting and tax evasion.
‘In security printing, we always prefer to have a wide range of different features. The digital features are complementary to the traditional security features and without question elevate the protection level of the document. To forge the digital features, you would need a different know-how than to forge the (physical) ones.’ Barna Barabas, Co-Managing Director of JURA.
As an example, if a physical stamp has been tampered with, this will be immediately evident upon visual inspection. Following this, an integrated 2D barcode can be scanned to verify its authenticity via a secure database.
‘Physical and digital features create ‘layered security’ as we call it, which is kind of bullet proof… visible features, such as labels with security on them, are the first sign by which anyone can recognise tax has been paid. They are ‘an entry point of inspection’, as experts put it.’ Marietta Ulrich-Horn, Co-Founder and CEO of Securikett.
Looking ahead, the integration of internet of things (IoT) technologies and advanced electronic tags is expected to further revolutionise the field of tax stamps. IoT devices can provide continuous tracking and monitoring of products throughout their lifecycle, offering unprecedented levels of transparency and control. However, this also raises new challenges, such as the need for standardised protocols and the management of vast amounts of data generated by these devices.
Additionally, while blockchain offers promising advantages in terms of data security and transparency, it is not without its limitations. ITSA points out that blockchain alone cannot authenticate the physical product, underscoring the necessity of maintaining a combined approach that incorporates both physical and digital elements.
The integration of physical and digital elements on tax stamps is essential for combatting counterfeiting and ensuring the integrity of tax systems. By harnessing the strengths of both approaches, governments and businesses can create a robust defence against fraud while enhancing traceability and compliance. Ultimately, as technology continues to advance, the ongoing development and implementation of these integrated solutions will be crucial in maintaining effective and secure tax administration systems worldwide.
