The domestic market has fallen prey to unfair competition from counterfeit, smuggled and illicit products, of which the consequences of such products being introduced on the market not only result in the disruption of demand for local products, but also causes loss of Government revenue. In the quest to fight illicit trade, the Government of the Republic of Zambia intends to implement the use of Digital Tax Stamps (DTS) as a source of Domestic Revenue Mobilisation (DRM). DTS are also usually used as a measure of track and trace (T&T) to curb counterfeit products in the tobacco and beverage sector, including both alcoholic and non-alcoholic beverages and water.
Despite its pure intentions to curb illicit trade, Government’s announcement to implement DTS has had a low buy in from industry. DTS are viewed as an extra cost on production thereby increasing the cost of doing business. The affected sectors such as the alcoholic, non-alcoholic and tobacco sectors have echoed mixed sentiments on the implementation of DTS as industry feels that solutions to curb illicit trade must be sector specific, as opposed to a one jacket fits all.
For sound policy implementation, it is imperative that Government is made aware of the potential challenges that might arise from the implementation of DTS which has the potential to negatively alter the business environment in Zambia.
Intricately, the local industry has expressed concern around the procurement of new machinery and technology required to accommodate DTS on the packaging of products. Most manufacturers’ product packaging is not designed to accommodate DTS. Therefore, investment in packaging and labelling are required to adapt to the new designs required for compliance purposes. Following the introduction of new packaging, heavy investment in marketing and education on the new product is required, otherwise, consumers may not recognise the product hence substitute the local products for imports that are seemingly familiar.
In order to adapt to current technologies, some companies already took the initiative to implement internal systems that are effective in T&T and in the fight against illicit trade. Therefore, the introduction of DTS could lead to a duplication of efforts and contribute to the already prevailing high cost of doing business in Zambia.
An increase in the cost of doing business leads to an increase in production which is passed down to the end use consumer through an increase in price of the final product.
To have a win-win situation for both the manufacturer and Government, Manufacturers at a DTS conference hosted by the Zambia Association of Manufacturers came together and presented different views and suggestions on how the implementation of DTS can be implemented without causing serious damage to industry. The Association further launched the first policy brief in a series of three, on the effectiveness of the implementation of DTS in Africa to bring light to the impacts of DTS in the tobacco sector with reference to other African countries.
At this meeting, the manufacturers reemphasised their view that solutions to curb illicit trade must be sector specific. Stakeholder representatives from the non-alcoholic beverages sector categorically stated that they do not support the introduction of DTS on locally manufactured products. The sector suggested that DTS be implemented on imported products as this will also be a way of protecting the local industry. In so doing, local products will become competitive against imports.
On the other hand, stakeholders from the alcoholic beverages sector echoed that if Government is to go ahead and implement DTS, the process should not be solely controlled by Government, but instead, industry should be allowed to implement systems that are effective for T&T that have proven to be cheaper in their line of business.
Conversely, tax stamps are not new to the tobacco sector as the sector has been subjected to paper tax stamps, hence, the announcement did not catch them by surprise. With the challenges faced in the use of paper tax stamps, the sector welcomes the implementation of DTS but strongly emphasized on transparency and strict monitoring by government authorities.
In as much as the different sectors seek a sector specific solution in implementing DTS, the key sectors have a few areas of convergence. The affected sectors have therefore advised a phased implementation of DTS to allow for adequate planning and acquisition of necessary equipment. The Association further urges the Government to consider the small and medium enterprises who do not have the financial muscle that large enterprises have to add new machinery to their production lines as they transition to implement digital tax stamps (DTS).
