Government locked into security sticker deal despite counterfeit concerns

By Nishel Fernando

The Finance Ministry has confirmed it will honour its agreement with the Indian company supplying the security stickers for the liquor bottles until January 2027, despite the repeated concerns raised by the Committee on Public Accounts (COPA) regarding the widespread circulation of counterfeit stickers. 

While the COPA had flagged violations in the agreement and noted that the sticker management process was failing to effectively curb the tax leaks, the finance officials have advised against terminating the contract prematurely.

The decision to maintain the status quo is driven by significant financial and logistical risks. The ministry has warned that unilaterally cancelling the contract could expose the state to compensation claims for breach of agreement. 

Furthermore, the officials highlighted the practical impossibility of securing an immediate alternative supplier, noting that initiating a new procurement process would be time-consuming and could leave a dangerous gap in the supply chain, potentially fuelling further illicit liquor production.

The contract, originally awarded in 2018 to Madras Security Printers, has been mired in controversy following the discovery of fake stickers that have cost the state billions in lost tax revenue. 

In late 2023, the Committee on Ways and Means revealed that the circulation of forged stickers had caused an estimated loss of Rs.60 billion to the government. At the time, the committee had recommended cancelling the tender, citing that the “foolproof” stickers were being widely forged. 

However, the latest stance from the ministry indicates that the government has opted to bypass a full tender cancellation in favour of modifying the existing arrangement.

To mitigate the counterfeiting issue without breaking the contract, the Excise Department has introduced a “new-style” security sticker model. According to the ministry’s latest report to Parliament, the implementation of this new model has “significantly reduced” the presence of fake stickers in the market.

Simultaneously, the Excise Department has intensified enforcement, handing over the investigations into the fake sticker syndicates to the Criminal Investigation Department. Internal probes have already resulted in the imposition of maximum fines on the liquor manufacturers found with bottles bearing fake stickers, with the department moving to recover the corresponding tax dues.

While the Finance, Economic Stabilisation and National Policies Ministry has recommended transitioning to a digital code printing system as a more secure alternative to physical stickers, the proposal remains stalled. 

The industry stakeholders have argued that digital code printing is impractical for the manufacturers with lower production capacities or slower machinery. As a result, the current physical sticker regime will remain the primary anti-counterfeit measure for the next two years, leaving the government to rely on stricter manual enforcement to protect its revenue streams.