This article originally appeared in the January/February 2011 edition of Tax Stamp News

By: Tal Gilat, President & CEO, InkSure Technologies Inc.

2010 saw several countries asking for bailouts from their neighbors. The mass media tended to focus on how these countries where spending their money. As anti-counterfeiting solutions providers and revenue agencies, we can assess if these countries were making every effort to collect the taxes owed to them.

All of the countries that asked for bailouts last year have lax tax policies that allow for much tax fraud and evasion. Tax fraud and evasion cost governments billions of dollars per year and it happens because of weaknesses in tax collection methods. Countries that ask for bailouts should be required to examine their tax collection procedures and fix the sources that allow the most common tax fraud to occur.

One recent example of a country that upgraded its revenue collection and came out ahead was Ukraine. The government of Ukraine upgraded the anti-counterfeiting technology in the country's cigarette and alcohol tax stamps in 2008 by adding forensic level machine readable taggants to the stamps. 

The covert anti-counterfeit protection streamlined the process of checking for counterfeit tax stamps and resulted in additional tax revenue for Ukraine. Ukraine reported an increase of $200 million in tax revenue collected from cigarettes and alcohol in 2008. That means about an extra $200 million per year was being robbed from the state budget; and that was just from lost cigarette and alcohol taxes!

In contrast, the majority of the countries that asked for bailouts last year fall short in tobacco and alcohol excise collection. Of course tobacco and alcohol taxes alone will not keep countries from going bankrupt, but it is a good start and should be part of a major tax overhaul for any country asking for a bailout.  

It is worth noting that alcohol and tobacco taxes are often designated for specific government programs. Proper collection of these taxes will ensure that these programs will receive the funding they need, even if the general state budget is in debt.

Tax stamps, and other streamlined methods of tax collection provide an easy way for countries to collect tax revenue and verify that it is paid. Streamlined tax collection methods usually generate a positive ROI and pay for themselves many times over.

Maybe cash-strapped countries should be asking for loans to upgrade their tax collection methods rather than bailouts. Government bodies giving the cash would have a much stronger ROI to measure the effectiveness of the loan and could demand a rigorous payback schedule.