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Holograms for tax and authentication

International Hologram Manufacturers Association (IHMA) : 04 August, 2009  (Special Report)
Philip Hudson of the International Hologram Manufacturers Association explains the growth in the use of holograms for government tax stamps on alcohol and tobacco
Holograms for tax and authentication
Almost 15 years since they were first used, holograms are still an extremely relevant and important authentication device for government tax stamps - indeed the market for tax stamp holograms is the second largest after banknotes according to a recent industry report. Here, Philip Hudson, chairman of the International Hologram Manufacturers Association explains further.

Excise duty on cigarettes and alcohol is both an important source of government revenue and a means of controlling and limiting consumption. The illicit trade in both, through smuggling and counterfeiting, cost treasuries billions of dollars a year in lost revenue. And the cost is not just a financial one to governments. The damage caused by counterfeiting to a company's brand reputation, loss of sales and market capitalisation can be incalculable.

So, it is against such a backdrop that holograms have become in recent years an invaluable and highly effective weapon used by tax collecting authorities in their war on smuggling and counterfeiting.

Today, tax stamps make up a significant share of the security print market. An estimated 124 billion tax stamps are issued annually for cigarettes while alcoholic drinks account for 12 billion - 60 billion of which feature a hologram. This is the largest sub-sector of the security print market, placing tax stamps ahead of banknotes in terms of printed documents.

The latest available figures show that the holographic tax stamp market is worth over $98 million (as at 2007) with cigarettes - due to the sheer volume of consumption - accounting for two thirds of that overall value. The sector for spirits is valued at $23 million while the one for wine comes in at over $14 million.

The growth of tax stamps has been driven by increased global cigarette and alcohol consumption on the back of rapid population growth particularly in developing parts of the world. And of course as demand has grown so too has the trade in illicit products being produced by ever more skilful and resourceful counterfeiters and criminal organisations.

Many counterfeit products are intrinsically unsafe and have not passed the rigorous testing procedures required of bona fide goods. Increasing incidences in poisoning and deaths due to fake, illicit or substitute alcohol flooding into markets also point to the dark underbelly of an illegal trade, particularly in those parts of the world where anti-counterfeiting and authentication procedures are not so strong and the dangers more acute.

The demand for low cost copies of premium brands is one factor behind the explosion in counterfeiting. Other factors that have been at play include industrial globalisation, extended supply chains, lax regional law enforcement and derisory criminal penalties, as well as the impact of the internet as a conduit for counterfeit goods. Another contributor to the rise of counterfeits is the spread of and access to high quality reprographic technology that has made it so easy and affordable to copy brand packaging.

Indeed, it has been this last factor and the ability to reproduce top quality copies of documents, labels and packaging that's heralded the development of security devices like holograms whose effects could not (and still cannot) be exactly replicated or simulated by normal reprographics methods.

All this activity has encouraged the drive by governments and law enforcement agencies around the world to find better solutions for protecting tax-raising stamps against the indelible mark of the counterfeiter - a role now being filled by holographic technology.

The majority of holographic impressions in use are hot foil applied to the narrow dimensions of a tax stamp and, for wine and spirit banderols, usually cover an area 3 - 4 mm wide by 12 - 15 mm in length. For cigarettes the length can be up to 20 mm. Some tax stamps use full holographic images which are usually in the form of a self adhesive all holographic label. Countries including Estonia, Latvia, Malta and India are notable users of all-over or predominantly holographic images to improve the security of their tax stamps.

Undoubtedly, holographic tax stamp have become a widely accepted and effective authentication device - they are regularly specified in government tenders and commercial bidding opportunities.

Today, there is no better opportunity for governments to act decisively to boost excise revenue from growing alcohol and tobacco sales in the face of the toughest global economic recession for decades by continuing to use the technology as an integral part of their strategies.

Holography is also seen as a complementary technology by the majority of potential buyers of forensic markers and highly covert products schemes while the market for holography on tax stamps will continue to grow - both as an additional security for tax stamps not currently carrying holograms.

There are still many countries and governments which have long running, well established non-holographic tax stamp programmes or are introducing a scheme for the first time. These present good opportunities for those go-ahead hologram manufacturers looking to expand their existing sales and push a proven anti-counterfeiting technology into new or developing geographical markets.

In Africa, for instance, some countries are looking at adopting tax stamp schemes for the first time and should any one of the highly populated countries decide to introduce stamps then the volumes and the value of tax stamps in circulation would escalate significantly.

Other areas of the world also likely to see more tax stamps will be the developing regions where economic prosperity has the best chance of maturing, largely areas of South and Central America and Asia - there are over 5.5 trillion cigarettes smoked per year (96% of all tobacco sales), with volume expected to increase as population growth continues in the developing world.

Although wine consumption is declining, the global sale of spirits has increased by 34% and now stands at over 26 billion bottles per year - with growth fastest in Russia and Japan. China continues to consume the most - 6.5 billion bottles per year.

Clearly huge volumes but also a huge opportunity for resourceful counterfeiters ready and willing to take advantage of regional markets where governments and security agencies either lack the wherewithal to tackle the problem or existing resources are over stretched. It's in these volatile regions - aiding the authorities in stemming the trade in illicit goods - where one possible future for holograms for tax stamps lies.

But there are other challenges on the road ahead. One of the most important will be the extent to which holograms can maintain their position in light of the growing demand for so-called 'digital' tax stamps.

The audit trail for taxed products is a critical component of tax stamp schemes, and digital technology is now being deployed to mark stamps with unique codes and store this on a database which can be interrogated in real time by in-field tax inspectors, and which also provides data on products marked which tax authorities can correlate with revenues received.

Such systems are aimed at fiscal recovery and not authentication, and hence do not obviate the need for robust physical security features on tax stamps such as holograms. Tax stamps serve two purposes. One is to provide a record of payment of tax. The other is to provide evidence that the stamp, and hence the product to which it is affixed, is genuine.

Digital systems are just the latest delivery vehicle for serialisation that enables products to be traced and tracked, hence fulfilling the first purpose. The physical integrity of the stamp - protected with holograms, security print, taggants etc - fulfils the second. It is to be hoped that tax authorities, in a quest to reduce costs, do not confuse the roles of the two.

To do so would be a false economy. It's clear that governments and agencies have seen the value of developing effective revenue gathering strategies using tax stamps, while the cost effective and reliable anti-counterfeiting benefits have been become apparent to suppliers of components, products and systems.
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