International Tax and Investment
Center
July 2014
Elizabeth Allen
COMPONENTS OF TOBACCO
TAX ADMINISTRATION
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TAX POLICY
LEGISLATION
TAXPAYER IDENTIFICATION AND REGISTRATION
TAXPAYER SEGMENTATION
AUDIT AND INSPECTION
PARTNERSHIPS
TAXPAYER SERVICES
ENFORCEMENT
TAX POLICY
 KEEP IT SIMPLE – Minimal exceptions
 KEEP IT CONSISTENT
 ENSURE TRANSPARENCY
 CONSULT INDUSTRY WHEN CONSIDERING CHANGES
 AVOID SUDDEN TAX HIKES – large tax hikes in Romania,
Lithuania and Malaysia were followed by increases in
illegal trace to 30% or more.
 KEEP RATES COMMENSURATE WITH AFFORDABILITY
TAXPAYER IDENTIFICATION
AND REGISTRATION
 Register according to published criteria.
 Issue a unique taxpayer identification number.
 Link the excise taxpayer number with the identification number for all
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other taxes for the same legal person.
Maintain electronic record of applicants refused or revoked excise
taxpayer registration.
Capture taxpayer key designatory details on an electronic register e.g.
name of business, office address, contact details, address of each set of
premises, name of responsible person etc.
Review taxpayer details annually and update taxpayer register upon
notified changes.
Ensure input is auditable.
Link taxpayer register with tax return issue, payment and compliance
record using taxpayer number.
TAXPAYER SEGMENTATION
WHY SEGMENT?
WHAT SORT OF SEGMENTATION?
 BY SIZE
 BY PRODUCT
 BY PAYMENT
 BY COMPLEXITY OF STRUCTURE OR OPERATIONS
 BY REGION
 BY COMPLIANCE HISTORY
LEGISLATION
 KEEP IT SIMPLE
 KEEP IT CURRENT
 PROVIDE FOR SECONDARY LEGISLATIVE
CHANGES e.g. to determine return and
payment requirements
 INFLUENCE ENFORCEMENT
LEGISLATION e.g. Offences and
penalties
AUDIT AND INSPECTION
Audit Approach
 Risk based by segment and cycle
 Professional - based on understanding the business sector
 Sample by segment
 Co-ordinated across all taxes and customs
 Aim is to improve taxpayer compliance
Inspection
 Unannounced at any time 24/7
 Physical as well as transaction based
Results of audit and inspections update risk profiles
PARTNERSHIP APPROACH TO
COMPLIANCE
Modern tax enforcement is a partnership – but not an equal
one! Revenue Authorities/Customs support voluntary
compliance by:
 Explaining tax requirements, official approach and
expectations;
 Maintaining a reasonable penalty and appeals process;
 Helping taxpayers those who make genuine mistakes; and
 Taking robust enforcement civil penalty and criminal
action against those who deliberately defraud the revenue.
PARTNERSHIP APPROACH TO
COMPLIANCE
Taxpayers role in the partnership includes:
 Commitment to compliance - rendering accurate tax
returns and timely payments;
 Willingness to co-operate with officials - providing
training on business processes, information about
trade sector trends and technological developments;
 Willingness to provide intelligence to officials about
illicit trade; and
 Demonstration of strong internal management and
anti-corruption controls.
TAXPAYER SERVICES
INFORMATION
 Brochures/leaflets in user-friendly language;
 Taxpayer seminars and surgeries;
 Website and telephone enquiry line
CONSULTATION
 Before deciding on significant changes in tax structure
or introducing a new tax or levy
TRANSPARENT AND EASY COMPLAINTS AND
APPEALS PROCESSES
REWARD COMPLIANCE
PAYMENT AND DEBT
MANAGEMENT
 Require electronic returns and payments;
 Potential for special accounting and payment terms for
small excise operators;
 Bonds/Securities required for excise operators to be
called in in the event of default unless an extended
payment period agreed in advance;
 Reduce payment period to shortly after the end of the
accounting period – maximum 15 days.
REVENUE ENFORCEMENT
 Work with Customs and Local Authorities to ensure
that smugglers, counterfeiters and those who do not
declare or who under declare domestic production are
investigated and subject to civil/criminal action;
 Maintain specialist intelligence and investigation
resources including using mobile task forces, scanners
and sniffer dogs;
 Work with Police and Local Authorities to conduct
campaigns e.g. wholesalers, retailers, distributors; and
 Ensure appropriate training and awareness for customs
staff about excisable goods.
SPECIAL REQUIREMENTS FOR
EXCISE CONTROL
 Being an excise taxpayer should be a privilege not a right;
 Highly taxed excisable goods are prime candidates for illicit trade
– undeclared domestic production or smuggling of legitimate or
counterfeit products so effective control of the legal supply chain
should release resource to tackle the illicit supply chain;
 Excise controls need to be a combination of physical controls,
professional audit and 24/7 inspection;
 Effective excise control requires skilled resources who understand
the revenue weaknesses in business processes and have the tools to
deal with them; and
 Excisable goods are often imported, exported or in transit – these need
to be controlled effectively at borders so they are not diverted to
undeclared domestic consumption.
SUPPLY CHAIN SECURITY
WHY DO WE NEED IT?
If the global supply chains for excise products can be
secured then it should be easier for enforcement
authorities to detect both the point at which legitimate
products are diverted to the illicit market and the
criminals who trade in them.
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SUPPLY CHAIN SECURITY
WHAT DOES IT INCLUDE?
 Processes and methods to enable manufacturers and
revenue administrations to secure the legitimate supply
chain.
 Measures required of all participants in the supply chain
to prevent diversion of legitimate products and
production machinery into illicit trade channels.
 Measures to promote responsible business conduct and
secure the revenue.
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SUPPLY CHAIN CONTROLS AT THE
WHOLESALE AND RETAIL LEVEL?
 Special licences for wholesale and retail outlets to sell
cigarettes or alcohol products should be additional to
any other licences required for businesses.
 Licensed premises should be inspected to ensure tax
has been paid on all tobacco products sold and that
the health and consumer protection legislation is
complied with.
 Two strikes and “out” policy.
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A GLOBAL PROBLEM NEEDS A
GLOBAL SOLUTION
 Fighting the global problems of Money laundering,
terrorist financing and bribery requires a joined-up
cross border approach worldwide.
 Coverage needs to include all forms of illicit payments.
 There needs to be increased exchange of information
 between tax administrations, the FIU, other law
enforcement agencies, and a joined-up approach
across all taxes and duties.
This approach has strong political support as indicated
in the latest statements from the G20.
WAY FORWARD?
 We must find a way of achieving greater cross tax
consistency in applying valuation rules for transfer pricing
and tariff/customs purposes.
 Dialogue between the WCO, OECD and ITIC might
explore options to achieve greater certainty for government
and business, secure revenue and reduce compliance costs.
How far could transfer pricing documentation be accepted
for customs purposes - or could Advance Pricing
Agreements be extended to customs?
 A practical way forward might be to develop joint tax and
customs audits.
INTERNATIONAL CO-OPERATION
REQUIRES
 International standards for data exchange, for the track
and trace technology and for so that data on global
movements of products can be exchanged in real-time
across continents and countries
 Track and Trace systems to be accredited independently
against an international standard so that Governments,
industry and consumers can be assured that systems are fit
for purpose.
 One size does not fit all! Beer may require a different
solution from spirits or cigarettes.
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AND CONSISTENCY
States that are parties to the United Nations Convention
on Organized Crime (UNTOC) and the United Nations
Convention Against Corruption (UNCAC)
can apply consistency in their treatment of
criminal offences that are dealt with by a number of
different international instruments.
UNTOC – CRIMINAL CONDUCTS
 Criminalization of participation in an organized
criminal group – Article 5
 Criminalization of the laundering of the proceeds
 of crime – Article 6
 Criminalization of corruption – Article 8
 Criminalization of the obstruction of justice – Article
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UNCAC – CRIMINAL CONDUCTS
 Bribery of national public officials (art. 15)
 Bribery of foreign public officials, officials of public
international organizations (art. 16)
 Embezzlement, misappropriation or other diversion of
property by a public official (art. 17)
 Abuse of functions, purpose of obtaining undue
advantage (art. 19)
 Bribery and embezzlement in private sector (arts. 21 &
22)
 Laundering of proceeds of crime (art. 23)
NATIONAL ENFORCEMENT
REQUIRES
 Track and Trace systems that can be 'extended' or
'integrated with' tax/volume verification solutions and
authentication to
 monitor and control the volume of products
manufactured to verify the correct taxes due and/or
paid; and which
 use covert and overt identifiers to detect genuine
products from those which are counterfeit; and
 mesh easily with existing IT systems for enforcement
and mutual assistance.
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PAPER TAX STAMPS v UNIQUE DIGITAL
IDENTIFIERS
 Paper Tax Stamps: Provide passive authentication:
 cannot track and trace aggregated packages
 open to theft e.g. in Kenya
 easily counterfeited providing consumers with false confidence in the
product
 use proprietary systems often with high prices and little flexibility, leaving
Governments and/or industry has no alternative thus presenting a barrier
to new entrants in the industry.
 Digital coding systems to an international standard: Provide active
verification with:
 greater protection for consumers & retailers
 a large data source to analyse illicit trade issues and trends
 comparatively inexpensive unit cost
 choice for large and small industry players
 Cost should not be prohibitive for small players in the alcohol or
tobacco products industry.
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TACKLING ILLICIT TRADE - A
COMPREHENSIVE STRATEGY
COMPREHENSIVE MEANS:
 Outcome not output based – shared high-level target
to reduce illicit trade
 Shared across:
 All public sector stakeholders – Ministries, State/Local
Authorities include Health, Education, Trade,
Consumer Protection - NOT JUST ENFORCEMENT
 Legitimate industry operators/Chambers of Commerce
 Other revenue and enforcement authorities – in the
region and in third countries
 Interpol, WCO and similar international bodies.
REQUIREMENTS FOR A COMPREHENSIVE
ANTI-ILLICIT TRADE STRATEGY
 ON GOING POLITICAL COMMITMENT AND VISION
 Balanced tax and tobacco control policies
 Resources to pull together the comprehensive approach and manage
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day-to-day interfaces
Research to estimate extent of illicit trade in each product sector on an
annual basis and impact of official actions
Ongoing monitoring and publication of annual reports
Mutual assistance provisions supported by a practical process for
exchanging key data
Internet based declaration and movement processes with shared risk
tools, notification and mandatory action and feedback.
Use intelligence!
Robust anti-corruption policies and PRACTICES.
A public awareness campaign.
THANK YOU