Tanzania: Digital Tax Stamps Crucial for Curbing Counterfeit Products

AVAILABLE data shows that the three East African countries of Tanzania, Kenya and Uganda have been losing close to US 3.5 billion dollars (about 8.050trl/-) every year through illicit cross[1]border trade.

The colossal amount is lost through smuggling of goods across illegal routes, along porous borders of the three founding member states of the East African Community (EAC).

Each member state has been taking various measures to curb the vice that not only denies government of requisite revenues, but also leads to dumping and flooding of substandard products in local markets.

As if that in not enough, the smuggled goods across illegal cross-border routes pose serious threat to local manufacturers, who are subjected to unfair competition from the trafficked goods which are not taxed.

However, given advancement of technology the three member states have embarked on digital solutions to identify and trace a number of products, which are sold in their markets.

Through such solutions the governments of Tanzania, Kenya and Uganda have introduced electronic systems for labeling and collection of requisite revenues such as excise and value added tax (VAT).

Given economic slow-down globally due to the Covid-19 pandemic, governments across the world are working around the clock to ensure they collect revenues for recurrent and development expenditures. For those who are new in the region, the EAC comprises six countries namely Tanzania, Kenya and Uganda, the founding members, which were later joined by Rwanda, Burundi and South Sudan.

The six members of the regional bloc are not an Island, and hence they have been affected by the negative impact of Covid-19 as it has been with other countries globally.

For instance in July last year, Safari.bookings.com surveyed 306 safari operators in Africa and found out that over 90 per cent of them had their bookings shrink by 75 per cent owing to the pandemic.

The World Travel and Tour[1]ism Council (WTTC) predicted that African countries' gross domestic product (GDP) stand to lose between US 53 and US 120 billion dollars from the tourism industry. In Tanzania, tourism con[1]tributes 17.2 per cent to the GDP and it is the country's primary foreign exchange earner at 25 per cent to the GDP.

The sector provides direct and indirect jobs to over 800,000 people. It is most likely that Tanzania and its neighbors will somehow lose revenues from the lucrative and thus need to look for remedial measures to cushion their economies.

Among other measures, electronic collection of revenues has been touted as among best alternatives to widen tax base, check tax evaders and counterfeiters, who deny requisite taxes to the government. There have been significant achievements in all the three EAC member countries which have embraced digital solutions for collecting revenues.

Tanzania, Kenya and Uganda have so far introduced electronic collection of taxes for some goods while Rwanda is reportedly on the line to introduce the system. Among the three countries which have already rolled out the technology, each of them has selected some products to which digital tax stamps are affixed.

Apart from excisable goods, Uganda, through the Uganda Revenue Authority (URA), became the first country in the EAC to introduce the electronic stamps for cement and sugar since April, this year. Before that, the URA had rolled out initial phases of the technology which covered tobacco products, bottled water, carbonated soft drinks and all alcoholic drinks, both imported and locally produced.

The technology, dubbed digital tax stamps (DTS) in Uganda, contains sophisticated security features and codes to prevent counterfeiting of goods through tracing and tracking capabilities.

As such, its application enables revenue collection authorities to track real-time production at factories and imports and eventually facilitates smooth col[1]lection of taxes. The electronic stamps as well make it easy for the government to detect smuggled and fake goods in the local market.

This is crucial for protecting the health of the people from consuming substandard products. By curbing trafficked and counterfeit products in the market they as well play an important role in checking unfair competition posed by smuggled and bogus products to local producers.

In Tanzania, the technology is known as Electronic Tax Stamps (ETS) and was first introduced in January 2019 for a range of products namely cigarettes and alcoholic drinks.

It was later extended in a second phase to carbonated soft drinks, bottled water, fruit and vegetable juices in addition to music and film products. After its introduction, data availed then by the Tanzania Revenue Authority (TRA) showed that collection of excise duty increased from 24bn/- in January to 28bn/- in April, 2019.

Based on the success story, the Parliamentary Budget Committee last year proposed that the digital stamps should as well be affixed on other products such as human and veterinary medicines, farm inputs and cosmetics, among others.

The team pointed to the fact that Tanzania and other countries in the region face a challenge of substandard and smuggled products which deny revenues to the governments.

This year, the parliamentary committee under its chairman Sillo Baran (Babati Rural-CCM), proposed further that the digital tax stamps should be extended to all goods produced through the conveyor belts. These include cement, edible oil and iron sheets.

Apart from evading taxes, smuggled products in the market pose health risks to consumers, low productivity to farmers and unfair playing grounds against local manufacturers.

In the neighboring country of Kenya, the Kenya Revenue Authority (KRA) in November 2019 introduced digital tax stamps for bottled water, juices, energy drinks and carbonated soft drinks in a move it said will deal a blow to tax evaders and counterfeiters.

The KRA thus instructed all manufacturers and importers of such products to affix the highly secure Excisable Goods Management System (EGMS) stamps effective November, 2019.

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