The new scheme was implemented alongside the already existing Chestny ZNAK (‘honest mark’) product traceability system, introduced in 2019. However, the two systems are completely independent, non-interchangeable, and noticeably different in terms of operating principles and scope.
For a start, the Chestny ZNAK scheme is coordinated by Russia’s Ministry of Industry and Trade, as a tool for combating widespread counterfeiting of consumer products in the country.
NPTS, on the other hand, is a programme managed by the Federal Tax Service for ensuring the collection of VAT and other tax and customs payments on specific imported goods. It forms part of a supranational agreement between members of the Eurasian Economic Union (EAEU) – namely Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia – to implement a traceability mechanism for goods imported into the EAEU customs territory. NPTS is therefore at various stages of implementation in the other member countries.
Another key difference between NPTS and Chestny ZNAK is that while the latter uses unique identifying datamatrix codes to track and authenticate a multitude of locally made and imported consumer goods at individual unit level, NPTS does not require goods to be marked at all. Instead, it uses electronic invoicing and batch registration numbers to track the B2B transactions and turnover relating to specific consignments, rather than tracking the physical goods themselves.
A third difference is that while Chestny ZNAK applies to items that include dairy products, bottled water, medications, tobacco, footwear, fur, perfume, tyres and photo cameras (with the plan to extend to all product groups by 2024), NPTS focuses on completely different goods, including refrigerators, forklift trucks, bulldozers, washing machines, monitors for automatic data processing systems, television receivers, baby strollers, child safety seats, electronic circuits, and – in the near future – cut flowers.
How does NPTS work?
Under the NPTS programme, batch registration numbers (BRNs) are assigned to individual consignments of goods subject to traceability, as soon as they are imported into Russia and declared to customs. The data contained in the declarations is then used to generate the BRNs.
An exception to this process relates to goods arriving from other Eurasian Economic Union (EAEU) countries, as they don’t have to be declared at Russian customs. In these cases, BRNs are assigned to the goods by the Federal Tax Service (FTS).
Taxpayers are required to add the BRNs to VAT invoices (for VAT payers) or shipping documents (for non-VAT payers). The invoices must be issued in electronic form through special electronic document interchange (EDI) operators.
EDI operators are obliged to transmit to the FTS on a daily basis all BRN-bearing VAT invoices and shipping documents received. And taxpayers must submit quarterly transactional information on purchases and sales of traceable goods to the FTS, as well as notify the authority of stocks held and import/export activity with other EAEU states.
With all this information in hand (centralised in an FTS database), the FTS is essentially concerned with detecting inconsistencies between different documents and reports submitted by different parties, at which point it may call for an onsite audit.
And Chestny ZNAK?
In comparison to NPTS, Chestny ZNAK generally works as follows:
- Unique datamatrix codes are generated and transferred electronically to manufacturers and importers by the Centre for Research in Perspective Technologies (CRPT), a state-authorised operator. The codes comprise two parts: an ID code, which determines the product’s position in the system as well as in a catalogue of goods covered by the system, and the verification code or crypto-tail, which is generated by the CRPT.
- CRPT stores the codes along with other product data in a centralised state information system.
- The manufacturers/importers print the codes according to the type of product to be marked and apply them to the unit-level (and in some cases, aggregated) product packaging.
- The information contained in the code (or accessible via the code) includes the name of the manufacturer, the place, date and time of production or sale, and the product expiration date, item number and standard number. For some products, the system stores relevant certificates and licences.
- As the products pass through the supply chain, the code is scanned by each economic operator, thereby allowing the system to record the entire journey of the products, from their place of manufacture right up to their sale to the final consumer, at which point they are scanned by online fiscal cash registers, in order to confirm their legality, before being withdrawn from circulation. This process synchronises the data of the track and trace system and the unified catalogue and prevents sellers from offering counterfeit goods.
- Consumers can also verify the legality of the products by means of a mobile application for digital marking.
When two systems meet
Since Chestny ZNAK and NPTS are two completely separate systems, one wonders what will happen when the two systems eventually meet up on the same product. Because if Chestny ZNAK is intended to be rolled out on all products for sale on the Russian market, then some products will inevitably fall under both schemes.
One of the downsides of NPTS could be said to be the lack of marking on the goods themselves, so there is no way of linking the physical goods to their respective BRNs and transactional documents.
The lack of marking also means that there is no visible difference between fully compliant goods circulating in the market and goods that have managed to pass under the radar and enter the market undeclared with no tax or customs duties paid on them.
So, if this is the case, wouldn’t integrating NPTS within the Chestny ZNAK system (which does use a product marking scheme) have the effect of combining the scope and benefits of both systems, in one overarching programme for fighting illicit trade as a whole – as opposed to having two systems managed by two different entities, fighting different facets of what is ultimately the same problem?