TOBACCO

TRACK&TRACESYSTEMS

ACROSSAFRICA

AREVIEWOFTRACK&TRACESYSTEMSWITHAFOCUSONCOMPLIANCEWITHTHEPROTOCOLTOELIMINATE

ILLICITTRADEINTOBACCOPRODUCTSANDTHEROLE

OFREGIONALECONOMICCOMMUNITIES

AUGUST2023

ReviewofTrackandTraceSystemsacrossAfrica

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TABLEOFCONTENTS

LISTOFABBREVIATIONS 2

EXECUTIVESUMMARY 3

1.INTRODUCTION 5

2.OVERVIEWOFINTERNATIONALLEGALINSTRUMENTS 6

2.1.WHOFrameworkConventiononTobaccoControl 6

2.2.WHOProtocoltoEliminateIllicitTradeinTobaccoProducts(ITP) 7

3.PROGRESSTOWARDSTRACK&TRACESYSTEMSINAFRICA 10

4.COMPLIANCEANDEFFECTIVENESSOFEXISTINGSYSTEMS 12

4.1.Kenya 12

4.2.Tanzania 15

4.3.BurkinaFaso 17

5.THEEUEXPERIENCE 20

5.1.KeyAspectsoftheEU’sT&TSystem 20

5.2.TheSystem’sStrengths 23

5.3.ShortcomingsoftheSystem 24

6.REGIONALAPPROACH 26

7.CONCLUSION 28

REFERENCES 30

APPENDIX 32

A1:SignatoriesandPartiestotheConventionfromtheAfricanContinent 32

A2:SignatoriesandPartiestotheProtocolfromtheAfricanContinent 33

A3:IllicitTradeProtocolArticle8:TrackandTraceProvisions 34

A4:MethodologicalNotes 35

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LISTOFABBREVIATIONS

AU

AfricanUnion

COMESA

CommonMarketforEasternandSouthernAfrica

DGDA

DirectionGénéraledesDouanesetAccises

EAC

EastAfricanCommunity

ECOWAS

EconomicCommunityofWestAfricanStates

ECTS

ElectronicCargoTrackingSystem

EC

EuropeanCommission

EGMS

ExcisableGoodsManagementSystem

EOI

ExpressionofInterest

EU

EuropeanUnion

ETS

Paper-basedElectronicTaxStamp

FCTC

FrameworkConventiononTobaccoControl

FTZ

FreeTradeZone

GSP

GlobalInformation-sharingFocalPoint

ITP

ProtocoltoEliminateIllicitTradeinTobaccoProducts

KRA

KenyaRevenueAuthority

MoF

MinistryofFinance

REC

RegionalEconomicCommunity

RFID

RadiofrequencyIdentification

SADC

SouthernAfricanDevelopmentCommunity

SKU

StockKeepingUnit

STDA

ExciseDutiesTraceabilitySystem

T&T

TrackingandTracing

TPD

TobaccoProductsDirective

TRA

TanzaniaRevenueAuthority

UI

UniqueIdentifier

WHO

WorldHealthOrganisation

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EXECUTIVESUMMARY

Theillicittradeincigarettesaccountsforanestimated10%ofallcigarettesconsumedglobally,accordingtotheWorldHealthOrganisation(WHO).Consumptionofillicitcigarettesissignificantlymoreprevalentinlow-andmiddle-incomecountriessuchasthoseacrossAfrica,andlikelyevenmoresogivenlongporousbordersbetweenAfricancountrieswhicharedifficulttocontrolinadditiontoscarceresourcesforenforcement.

Aspartoftheireffortstocombatillicittrade,23AfricancountrieshaveratifiedtheFrameworkConventiononTobaccoControl’s(WHOFCTC)ProtocoltoEliminateIllicitTradeinTobaccoProducts(hereafterreferredtoastheITPortheProtocol).TheProtocolobligesitsPartiestoimplementanumberofmeasurestoincreaseoversight,transparencyandenforcementalongthetobaccosupplychain.AfoundationalpillaroftheProtocolistheagreementtoimplementaglobaltrackingandtracing(T&T)regime,comprisingnationaland/orregionalT&Tsystemsandaglobalinformation-sharingfocalpoint(GSP)tosecurethetobaccoproductsupplychainandtoprovideauthoritieswithaplatformtoexchangeinformationontheorigin,transportationroute,intendedmarketofsaleandpotentialpointofdiversionoflegaltobaccoproducts.

TheobjectiveofthisstudyistoreviewtheprogresssomeAfricancountrieshavemadeinimplementingT&Tsystems,toassesstheeffectivenessofthesesystems,andtoevaluatetheircompliancewiththeProtocol.ThestudythenevaluatestheregionalT&Tregimeimplementedacrossthe27EuropeanUnion(EU)countriesandconsidersthepotentialadvantagesofaregionalapproachfromanAfricancontext.Finally,itmakesrecommendationsforAfricancountriestoimprovetheITPcomplianceandtheefficacyoftheirnationalT&Tsystems.

KEYFINDINGS

1.FullydigitalT&Tsolutions(i.e.,secureanduniquecodesprinteddirectlyonpackagingoftobaccoproducts)basedonopenstandardsaretheonlyexistingsolutionsthatenabletherecordingandtrackingofthemovementoflegitimatetobaccoproductsthroughthesupplychain,fromthepointofmanufacturetowhentheproductissoldtothefirstindependenteconomicoperatorasrequiredbytheITP.

2.FullydigitalT&TsolutionscanfulfilalltechnicalrequirementsoftheITP.Additionally,theyofferacost-effectiveandsecureapproach.ItissurprisingtoseethatmanyAfricancountries,oftenwithscarceforeignexchangereserves,haveadoptedsystemsthatarefarmorecostlythanthoseintheEUcountries,insomecasesuptotwentytimesmoreexpensive.

3.Paper-basedsystems(i.e.,taxstampswithsecurityfeaturesandpre-printeduniquecodes,stillcommoninseveralAfricancountries)canonlyactasanauthenticationtool.Despitetheexcessivelyhighcost,theydonotperformthetrackandtracefunctionsthroughthesupplychainrequiredtocomplywiththeITPobligations.Moreover,paper-basedsystemsaresusceptibletocounterfeiting,despitecontainingadvancedsecurityfeatures(TheStar,2022).

4.FullydigitalT&Tsolutionsareacceptedasthestandardinotherindustries,includingpharmaceuticals,andsupportedasaglobalpolicyproposalbytheWHO(WHO,2021a).

5.Africa’sRegionalEconomicCommunities(RECs)shouldconsideradoptingacommoninteroperableT&Tsolutiontoenablecross-bordersharingofdataandclosecooperationtoeradicateillicittrade.TheEU’sdigitalT&TsystemprovidesabasemodelforAfrica’sRECs

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tofollow.Itcanbeadaptedtofitregionalrequirements,enablestheseamlessexchangeofinformation,allowstechnologicalflexibility,interoperabilityandfulfilstheobligationsoftheITP.

Theconclusionsabovearebasedonanin-depthassessmentofthreeAfricancountriesthathaveimplementedsystemstocombatillegalcigarettetrade:Kenya,Tanzania,andBurkinaFaso,alongwithacomparisonwiththeEU’sT&Tsystem.ThetablebelowreviewsthetechnicalcomplianceofthesenationalsystemsagainsttherequirementsoftheFCTCITP:

CATEGORYITPARTICLE

KENYATANZANIA

BURKINAFASO

EU

Unique

Identification

Markings(UIs)

Article8.3:Unique,

secure,andnon-

removableidentificationmarkings(UIs)affixed

Information

Required

Article8.4.1:Necessaryinformationavailable

directlyorviaalink

Article8.4.2:Date&

locationofmanufacture,manufacturingfacility,

productdescriptionandintendedmarketforsalesformpartofUI

Timeof

Recording

Article8.5:Information

recordedatthetimeof

production,timeoffirst

shipmentbymanufacturerortimeofimport

Information

Availability

Article8.6:The

informationrecordedis

accessiblebymeansofalinkwiththeUImarking

Article8.8:The

informationrecordedis

accessibletotheGlobalInformationSharingFocalPoint(GSP)onrequest

CONSIDERATIONSMOVINGFORWARD

BasedonareviewoftheFCTCITPandsolutionscurrentlyimplementedinAfricaandtheEU,itisrecommendedthatAfricannationsimplementfullydigitalT&Tsolutionsandadoptaregionalapproachwherepossible.SecretariatsofRECsarewellplacedtoplayaleadershipandcoordinatingroleinsettingupandadministeringregionalsolutions.

Itisimportanttorecognisethattrackingandtracingisjustoneimportantmeasurethatcountriesshouldtaketocombattheillicittradeintobaccoproducts.Itisatool,ifimplementedproperly,toprovideintelligenceandimproveauthorities’abilitytoidentifycriminalgroupsandintercepttheirsupplyofillegaltobacco.T&Tsystemsshouldbeaccompaniedbystrongenforcementandbordercontrols,andcomplementothersupplychaincontrolmeasuresoutlinedintheITP,suchaslicensingandduediligence,aneffectivecustomsandexciseadministrationsystem,andalegalandjudicialframeworkwithstrongpenalties.

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1.INTRODUCTION

AnumberofAfricancountrieshavecommittedtoimplementtrackingandtracing(T&T)systemseitherinaccordancewiththeFrameworkConventiononTobaccoControl’s(WHOFCTC)ProtocoltoEliminateIllicitTradeinTobaccoProducts(ITP)oraspartoftheirnationalstrategytocombatillicittradeintobaccoproducts.

ThepurposeofthisstudyistoreviewprogresstowardsimplementingT&Tsystemsacrossthecontinent,toassessthecomplianceofexistingsystemswithITPrequirementsandtoinvestigatethepotentialbenefitsfromaregionalperspectivetocombatingillicittrade.

Asastartingpoint,thestudyprovidesabriefoverviewoftherelevantarticleswithintheFCTCandITPinsection2.

Section3reviewsprogresstowardsimplementingT&Tsystems(orothersupplychainsecuritysolutions)acrossthecontinentmorebroadlyfocussingoncountrieswhichrecentlyinitiatedstepstoratifytheProtocoland/ormovedtowardstheimplementationofT&Tsolutions.Thereviewhighlightskeyissuesthatauthoritiesneedtoconsiderwhenimplementingthesesolutions.

Section4providesanassessmentofthecountriesthathavereportedtohaveimplementedT&TregimesinaccordancewiththeProtocol.AdetailedanalysisisperformedonKenya,Tanzania,andBurkinaFaso.ThisanalysisisaimedatassessingthecomplianceofthecurrentsystemsimplementedagainsttherequirementsoftheFCTCITP,butalsoconsiderstheeffectivenessofthesesystemsmorespecificallyinaddressingillicittradechallengesineachcountry.

Section5reviewstheT&TsystemintheEuropeanUnion(EU),implementedundertheTobaccoProductsDirective(TPD)adoptedin2014.ThisassessmentconsidersthemainelementsoftheEU'sT&Tsystem,itsstrengthsanditsweaknesses.TheanalysisofferslearningstoAfricancountriesconsideringtheimplementationofaregionalT&Tsystem.

Section6offersaseriesofrecommendationsinsupportofT&TsystemimplementationacrossAfrica,basedonthelearningsfromthereviewofexistingsystemsinplaceandtheEUsystem.

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2.OVERVIEWOFINTERNATIONAL

LEGALINSTRUMENTS

Therearetwoglobaltreatiesthatregulatetobaccoproducts:theWorldHealthOrganisation’s(WHO)FrameworkConventiononTobaccoControl(FCTC)andtheProtocoltoEliminateIllicitTradeinTobaccoProducts(ITP).TheITPisthefirstProtocoladoptedundertheFCTCandisaninternationaltreatyinitsownright.AllFCTCPartiescanbecomeaPartytotheITP.OncecountriesratifytheITP,theyareobligedtoimplementitsmeasures.OnlytheITPprovidesdetailedguidelinesandobligationsassociatedwiththeimplementationofaT&Tsystem.

2.1.WHOFrameworkConventiononTobaccoControl

TheFCTCisthefirstinternationaltreatytobenegotiatedthroughtheWHO.ThetreatywasadoptedbytheWorldHealthAssemblyon21May2003andenteredintoforceon27February2005.Currently,182states,with49inAfrica,arepartytotheConvention1.TheFCTCseekstomeetitstobaccocontrolobjectivethroughaseriesofdemandandsupplyprovisions,includingaspecificarticle–Article15–dedicatedtofightingtheillicittradeintobaccoproducts.

UnderArticle15,PartiestotheConvention1)recognisethattheeliminationofallformsofillicittradeintobaccoproductsandthattheimplementationofrelatedlawsandregionalagreementsareessentialcomponentsoftobaccocontrol;and2)agreetoadoptmeasurestoensurethatallunitpacketsandpackagesoftobaccoproductsandanyoutsidepackagingofsuchproductsaremarkedtoassistPartiesindeterminingtheoriginandpointofdiversionoftobaccoproducts.Partiesmustalsomonitor,document,andcontrolthemovementoftobaccoproductsandtheirlegalstatus.

Toachievethis,Partiesagreethattheywillincludeastatementonunitpacketsorpackagesoftobaccoproductsforretailandwholesaleonitsdomesticmarket,oraneffectivemarkingwhichindicatestheintendedfinaldestinationoftheproduct.TheymayconsiderdevelopingapracticalT&Tregimethatwouldfurthersecurethedistributionsystemandassistintheinvestigationofillicittrade.Tothisend,Partiesagreetomonitorandcollectdataoncross-bordertradeintobaccoproducts,andimplementmeasurestomonitor,document,andcontrolthestorageanddistributionoftobaccoproductsheldormovingundersuspensionoftaxesordutieswithinitsjurisdiction.Importantly,Partiesalsoagreetopromotecooperationatregionalandsubregionallevelstocombatillicittradeoftobaccoproducts.

BecausetheFCTCillicittradeprovisionsunderArticle15arenotdetailed,andare,insomecases,non-binding,FCTCPartiesdevelopedandadoptedtheITP,whichprovidedmoredetailedguidanceandobligationsforitsParties.

1UnitedNationsTreatyCollection(2023).SeetableinAppendixA1.

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2.2.WHOProtocoltoEliminateIllicitTradeinTobaccoProducts(ITP)

Recognizingthesignificantthreatposedbytheillicittradeintobaccoproducts,andtheneedforgreaterinternationalcooperationandcoordinationinthefightagainstillicittrade,PartiestotheFCTCnegotiatedaProtocolbasedonFCTCArticle15,knownastheWHOProtocoltoEliminateIllicitTradeinTobaccoProducts.

TheProtocolwasadoptedbyconsensuson12November2012andenteredintoforceon25September2018.Currently,67statesarepartytotheProtocol,including23Africancountries2.EightAfricancountrieshavealsosignedtheProtocol(inotherwords,expressedtheirintentiontotakestepstobeboundbythetreatyatalaterdate)3.

Figure1:AfricancountrieswhohavesignedorratifiedtheProtocol

Source:UnitedNationsTreatyCollection(2023)

2ThisincludesseveralmemberstatesoftheEU,Brazil,andtheUnitedKingdom,aswellas23Africancountries.TheseAfricancountriesaredepictedinFigure1andalsolistedinAppendixA2.

3TheseeightstatesincludeBotswana,theDRC,Guinea-Bissau,Libya,SouthAfrica,Sudan,Tanzania,andTunisia.

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ProvisionsoftheProtocolwhichseektosecurethesupplychainaresummarisedinfigure2below:

Figure2:SummaryoftheprovisionsoftheProtocol

ITPArticle8,TrackingandTracing,isoneofthemostcriticalamongseveralsupplychainobligationsincludedintheProtocol.TheProtocol’sglobalT&Tregimecomprisesofnationaland/orregionalT&Tsystemsandaglobalinformation-sharingfocalpoint(GSP)locatedattheConventionSecretariatoftheFCTCandaccessibletoallParties,enablingthemtomakeenquiriesandreceiverelevantinformation.

T&TsystemsadoptedbyITPPartiesmustmeettherequirementsoutlinedintheProtocol4inordertoensurecompliancewiththeProtocol’sinternationalobligations.Theseobligationscanbeorganizedunderfourmaincategories:1)UniqueIdentification(UIs)CreationandMarkingofCigarettePacks;2)LinkingInformationtoMarkings;3)RecordKeeping;and4)DataAccessibilityandSharing.

4SeeAppendixA3.

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Thesefourcategoriesandtheobligationsassociatedtherewithareshowninthetablebelow:

Table1:Maintracking&tracingrequirementsoftheProtocol

UNIQUE

IDENTIFICATION

MARKING

CREATIONAND

APPLICATION

Unique,secureandnon-removableidentificationmarkingsareaffixedtoeachpack.Manufacturedate,location,facility,theintendedretailmarketand

productdescriptionshallformpartofUniqueIdentificationMarkings(UIs).

INFORMATIONLINKEDTO

MARKINGS

InadditiontotheinformationbuiltintoUIs,inorderforthekeyinformationset

outbytheITPtobemadeavailable,thereneedstobealinkwithinthedatabaseorawayofaccessingthedata.

INFORMATIONRECORDED

Allmanufacturinganddistributiondataiscapturedandrecordedsecurely

duringproductionandshipmentuptofirstnon-affiliatedEconomicOperator(suchasadistributororwholesaler).

INFORMATION

ACCESSIBLETO

AUTHORITIES

Allrequireddatamustbemadeaccessibletoauthoritiesbymeansofalink

withtheUIs.ItshouldbeaccessibletotheGSPonrequestthroughastandardelectronicsecureinterfacewithitsnationaland/orregionalcentralpoint.This

includesmovementsoftheproductsuptotheretailer(throughalldistributionsinthesupplychain),howevertheITPonlyrequirestrackingtothefirstnon-

affiliatedEconomicOperator.

ThefigurebelowprovidesavisualrepresentationofhowanITPcompliantT&Tsystemwouldbeappliedandoperateinpractice.

Figure3:AnITPcompliantsysteminpractice

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3.PROGRESSTOWARDSTRACK&

TRACESYSTEMSINAFRICA

ThissectiondiscussestheprogressmadebyAfricancountriesinimplementingT&Tsystemsandprovidesinitialinsightsintofactorsthatauthoritiesareencouragedtoconsiderwhenoptingfortracking&tracingsystems.

TheConventionandtheProtocolhavereportingrequirementsforPartiestofollow.Theresultsfromthe2020reportingcyclesuggestthatAfricancountrieshavebeenslowto:

?Implementmeasurestoadvancethemonitoringofthestorage&distributionoftobaccoproducts;

?Promotecooperationtoeliminateillicittrade;

?Facilitatetheexchangeofinformation;and

?Improvethemonitoringofcross-bordertrade.

Furthermore,AfricancountrieshavebeenlaggingintermsofimplementingT&Tsolutions.10outof23countriesthatratifiedtheProtocolstillhaven’tinitiatedtheprocessofT&Timplementation.Whereself-reportedprogresshasbeenmade,systemsorframeworksarestillsomewayofffrombeingcompliantwiththeITP.Progressislackingespeciallywhenitcomestotheimplementationofthefollowing:

?Uniqueidentificationmarkings(UIs);

?AffixingorprintingUIsonallunitpacketsandpackagesandanyoutsidepackagingofcigarettes;

?Capturinginformationontheintendedmarketforsale;

?Completeinformationregardingtheproductdescription;and

?Informationregardingstorage,warehousingandshipping.

Despitelimitedprogressreportedin2020,moreAfricancountriesarenowbeginningtotaketheinitialstepstowardstheimplementationofT&Tsystems.CountriessuchasCoted’Ivoire,RepublicofCongo,SenegalandMalihaverecentlyinitiatedadministrativeorlegislativeactiontostarttheprocess.

Ghana,meanwhile,announcedenhancedsecurityfeaturestobeaddedtoitsexcisetaxstampsin2021,whileMauritiusimplementedexcisestampswithcertainauthenticationfeatures.Egypt,whichratifiedtheITPinJanuary2021,currentlyhasataxstampsolutioninplace.

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CountrieswhichhavesignedbuthaveyettoratifytheProtocolhavealsomadesomeprogress.Ethiopia,forexample,hasyettointroduceaT&Tsolutionbuthasstartedexploringwaysofdoingso.Meanwhile,inFebruary2020,theDemocraticRepublicofCongo(DRC)signedanagreementforthesupplyofapaper-basedElectronicTaxStamp(ETS)solution,locallyreferredtoastheexcisedutiestraceabilitysystem(STDA).Sudan,whichsignedtheITPProtocolinSeptember2018,alsohasapaper-basedtaxstampsysteminplacethatindicateswhethertheappropriatetaxeshavebeenpaid.

WhilesomeeffortshavebeenmadetoimplementT&Tsystems,theapproachisfragmentedacrossthecontinentandfocusedonauthentication(tax-stampbased)andtaxverificationsolutions,ratherthantrackingandtracing.ThesesolutionsarenotcompliantwiththeITPrequirements.

Moreover,Africannationshavemadedecisionsregardingsupplychainsecurityinisolation,despiteahighprevalenceofcross-borderillicittobaccotrade.Tobeabletosecuresupplychainsacrosssharedborders,countriesneedtoimplementinteroperableT&Tsystemsbasedonopenstandards5withadequateinformation-sharingcapabilities.

ThecomplianceofsystemswiththeITPiscruciallyimportanttowardsultimatelyreachingtheobjectiveoftheProtocol,whichisaimedatcombatingillicittobaccotrade.Thisisthefocusofthenextsection,whichentailsanin-depthassessmentofthecountriesthathavereportedtohaveimplementedT&TregimesinaccordancewiththeProtocol.TheaimistoassessthecomplianceofthesesystemsagainsttherequirementsoftheITP.

5TheInternationalTelecommunicationUnion(ITU)definesopenstandardsasfollows:"OpenStandards"arestandardsmadeavailabletothegeneralpublicandaredeveloped(orapproved)andmaintainedviaacollaborativeandconsensusdrivenprocess."OpenStandards"facilitateinteroperabilityanddataexchangeamongdifferentproductsorservicesandareintendedforwidespreadadoption.IBMfurther

explains

theuseofopenstandardsas:“Businesseswithinanindustryshareopenstandardsbecausethisallowsthemtobringhugevaluetoboththemselvesandtocustomers.Standardsareoftenjointlymanagedbyafoundationofstakeholders.Therearetypicallyrulesaboutwhatkindofadjustmentsorupdatesuserscanmake,toensurethatthestandardmaintainsinteroperabilityandquality.”

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4.COMPLIANCEANDEFFECTIVENESS

OFEXISTINGSYSTEMS

Thissectionentailsanin-depthassessmentofthecountriesthathavereportedtohaveimplementedT&TregimesinaccordancewiththeProtocol.ThecountriesexaminedareKenya,TanzaniaandBurkinaFaso.TheanalysisisaimedatassessingthecomplianceofthesystemsinthesecountriesagainsttherequirementsoftheITP.Italsoconsiderstheeffectivenessofthesesystemsmorespecificallyintacklingillicittradeintobaccoproductsgiventhechallengeseachcountryisfacedwith.

4.1.Kenya

OVERVIEWOFTRADEINTOBACCO

Kenyaisanetexporteroflegaltobaccoproducts6,duetothemanufacturingfacilitiesbasedinthecountry.ItsUS$136moftobaccoexportsarepredominantlytoneighbouringcountriesintheEastAfricanCommunity(EAC).It’slargestimportsoflegaltobaccoproductsarefromUganda.ThesignificanttobaccoproducttradebetweenKenyaanditsneighbourshighlightstheneedforKenyaanditsneighbouringcountriestojointlyimplementaninteroperableT&Tsystemwhichmonitorsthemanufacturingandmovementoftobaccoproductsacrosstheregion.

Kenyaisalsohighlyexposedtoillicittobaccoproducts.Historically,Kenyaexperiencedlargequantitiesoflocallytax-evadedcigarettes,whichwereproducedforexportbutneverleftthecountry,alongsideundeclareddomesticcigaretteproduction.Theseillicitcigarettesweresolddomesticallywithoutthepaymentoftaxes.Kenyasuccessfullycounteractedlocallymanufacturedillicittobaccoproducts;however,illicitcigarettestodayaremorefrequentlysmuggledinfromneighbouring,lower-pricedcountries,suchasSouthSudanandUganda.ThisagainunderpinstheneedforKenyaanditsneighbouringcountriestoimplementafullyinteroperableT&Tsystem.

CURRENTSUPPLYCHAINSECURITYSOLUTION

TheKenyaRevenueAuthority(KRA)hasrepeatedlytriedtoaddressillicittradeinKenyathroughvarioustaxstampandsupplychainsolutions.Papertaxstampswereintroducedin2003,withserialnumbers,servingasproofoftaxpayments.However,thesestampsprovedeasytobothcounterfeitandsteal.Furtherattemptsweremadetocontrolthesupplychain,includingtheintroductionofanElectronicCargoTrackingSystem(ECTS)whichtrackscigarettesintransit.ThissystemwasaimedatensuringthatVATandexcisetaxescouldonlyberefundedonceproductsreachedtheirexportdestinationandcouldnotbelocallytax-evaded7.

6Includesfinishedandunfinishedtobaccoproducts.

7Ross(2017).

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ThecurrentElectronicGoodsManagementSystem(EGMS)wasintroducedin2013.Itconsistedofan‘ElectronicTaxStamp’(ETS),withenhancedsecurityfeatures.Thesefeaturesincluded‘overt’security(identifiablebythegeneralpublic)and‘covert’features,suchassecurityinks,onlyidentifiablebylawenforcement.Eachtaxstamphasacodewhichneedstobescannedbyaphotosensitivereader,whichmustbeplacedoneachmanufacturingline.

ThedatafromeachscanissenttotheKRAsothatthevolumeofcigarettesproducedcanbereconciledwiththetaxpaid.ThisrequirementisonlyinplaceforcigarettesdestinedforsaleinKenya,withexportedproductscoveredunderthealreadyestablishedECTS.

ThereareseveralweaknessesassociatedwiththeKenyansystem.Firstly,theinformationprovidedwithinthecodesislimited,asthesearepurchasedonthedateofdeclaration,ratherthanonthedateofmanufacture,meaningthattheyarenotproductspecificandcouldbeusedforarangeofdifferentproducts.

Secondly,thereisnointeroperability,meaningthatanycodesaffixedtopacksaremeaninglesstoothernationalauthorities.Thesystemisnotinteroperablewithothersystems,suchaswiththesysteminUganda,wherealargeproportionofKenya’sillicittradecomesfrom(despitetheUgandansystembeingprovidedbythesameoperator).

Finally,thesystemhassignificantcostimplications,withthecostequatingto$25.72per1,000stamps8.ThisisamuchhigherpricethanalternativeT&Tsystemswhichofferagreaterleveloffunctionality.Furthermore,proposedcostsfor2023were$40per1,000stamps,oneofthemostexpensiveintheworld,addingtoKenya’sforeignexchangepressures.

KENYA’SSYSTEMANDITPCOMPLIANCE

Table2highlightsthelevelofcomplianceacrossITPrequirements,asdefinedbythespecificarticleswhichrepresentthecorerequirementsofaT&Tsystem.ThecomplianceofKenya’sEGMSwiththeFCTCITPisweak.Thisismainlyduetothelackofsupplychaininformationandreportingcapabilitieswhichlimittheinformationavailabletoauthorities,thusreducingsupplychainoversightanddiminishingtheirabilitytocombatillicittrade.

Critically,paper-basedelectronictaxstampsareonlyappliedtocigarettepacks,whichdoesnotallowforaggregationtocartons,casesandpallets.ThismeansthatETSonlyallowsverificationorauthenticationofapackandifitislegallymanufacturedandwhethertaxeswerepaid,butitdoesnotprovideanyinformationonwhopurchasedthecigarettes,theshipmentrouteanditsintendeddestination–creatingsupplychainsecurityissuesanddelaysininspections.

8CTI(2021).

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Tab