On product security solutions by public institutions in Turkey

Diyadin Yakut

Despite the accelerating growth pace in a share of privately-owned firms due to an urgency to ensure that commercial rights granted to them by respective jurisdictions are not merely nominal protection mechanisms by employing product security solutions; governments across the globe and their affiliated public or semi-public institutions continue to dominate the demand side of the product security (product authentication/track/trace systems) market.

The situation and market trajectory of product security solutions in Turkey is no exception in this regard and goes hand in hand with the prevailing global trend. Attempts of the Turkish government to design and implement product security solutions to reap multiple benefits as diverse as safeguarding public health, securing tax revenues and protecting both consumer and commercial rights via installing track and trace systems covering various vital goods go back to the beginning of the 2000s.

The current situation in Turkey with respect to different government-enforced product security solutions is as follows:

Tax stamp system for tobacco products and alcoholic beverages

The main motivation and logic behind the government’s desire to track and trace tobacco products and alcoholic beverages is the necessity to ensure the taxes levied on these products. Both tobacco products and alcoholic beverages, irrespective of whether they are domestically produced or imported, are taxed quite heavily in the form of one-time imposition of a high rate of excise duty (special consumption tax) and value-added tax.  

To manifest the vitality of such a system for these products, we should briefly note that the percentage of tax amount in relation to the unit price may exceed 80 percent for some products and the total annual tax derived from these two group of products (tobacco products and alcoholic beverages) has recently reached approximately 10 percent of the aggregate national budget revenue.

Serialization of medicinal products

Meanwhile, the primary drive for the surveillance of human medicinal products through serialization methods, other than protecting the public’s health in the case of mass circulation of counterfeited or smuggled products, is more associated with the government’s desire to stem grave financial losses that would be otherwise suffered by the Social Security Institution (SGK).

The SGK is a public body tasked to cover the medical expenses of most of the population within the context of the “general health insurance scheme,” in effect for many years now. The serialization method, which functions by implementing unique 2-D codes to a unit’s inner packaging, is employed by the Health Ministry. These 2-D codes provide a singular feature to all unit medicines, which in turn enable the SGK, which buys the overwhelming majority of medicines in the market, to successfully track medicines and determine any wrong-doing or abuses. 

Holograms for cultural and artistic products
 
The principal stimuli for the Ministry of Culture and Tourism to include books and CDs within the framework of a “track and trace system via security holograms” can be described as the Turkey’s long-standing effort to reduce the number of cases of copyright violations, notoriously detrimental to the development of cultural and artistic production. The system operates with one single firm, authorized by the concerned public body to produce and distribute security holograms for the entire market. This system has so far delivered on its original goals of diminishing the number of unauthorized circulation of cultural and artistic works such as books and CDs.

‘National marker system’

High taxes on oil products, analogous to tobacco products and alcoholic beverages, lead to the urgent need to track and trace fuel for the sake of securing large amounts of taxes for the national budget. This mounting need was finally satisfied to a great extent by the establishment of a “national marker system,” a tracking mechanism that operates by adding a special chemical mixture to all oil products. This tracking scheme is carried out and supervised by the Energy Market Regulatory Authority to tackle the illicit trade of fuel, which would otherwise be widespread in the absence of such an effective security solution due to Turkey’s geographical proximity to world’s top oil producers and its heavy reliance on importation. Considering that approximately 17 percent of the national budget is made up of VAT and excise duty generated from oil products, the importance of installing a tracking system of this nature becomes more evident.

As elaborately cited above, all four major product security systems in Turkey are being enforced and carried out by government agencies. No matter how fast the market share of private actors in the product security sector grows, the sheer importance of strategic concerns such as public health, commercial rights, budget targets and to some extent national security, all inherently associated with product security, is likely to keep governments and its affiliated institutions as leading market players in the coming years.


*Diyadin Yakut is a tax inspector at the Turkish Finance Ministry.