Seven years of mandatory marking: results and prospects

14 November 2023
Tax Messenger
Mandatory product marking was introduced in 2016. Key milestones of the system operation over the seven years include the following:

  • More than 600,000 marking system participants (legal entities and individual entrepreneurs)
  • 16 goods categories covered
  • 11.5 million downloads of the mobile app to check the marking
  • Analytical market overviews for marked goods prepared on the basis of the system data (price monitoring, price and demand elasticity, sales potential)
  • Identification of unscrupulous participants of the marked product circulation system, and holding them administratively or criminally liable for violation of the marking rules
  • Mutual recognition of marking codes for certain goods categories within the EAEU
  • A drop in counterfeit and illicit trade:

  1. The share of counterfeit milk dropped by two thirds.
  2. Sales of expired dairy products decreased by 55%.
  3. Sales of expired drugs dropped by two thirds.
  4. The number of fake tires reduced by half.
  5. There was a 30% drop in counterfeit footwear and perfumes.

As at the end of 2023, the following categories of goods are subject to mandatory marking:
In 2024, mandatory marking is to be introduced and experiments are planned with respect to the following categories of goods:
Marking of the entire product range was originally planned to be introduced by 2024, but the deadline had to be postponed due to the current economic situation in Russia. Nevertheless, the system is obviously going to be scaled up to cover most categories of goods.

Why is marking required and how does it work?

Mandatory digital marking of goods serves as a guarantee of goods authenticity and quality for customers, as it provides live and reliable updates on the movement of goods throughout all economic operations with them, from manufacturing to sales to end customers or disposal.
For the state, marking of goods is supposed to ensure and already ensures a contraction of the shadow market, increases collectability of tax and customs duties, reduces costs of setting up commodity market control.

There are some presumed advantaged for business as well:

  • White market players enjoy revenue growth and increased competitiveness.
  • Work processes and resources can be planned and optimized in advance.
  • Goods accounting is simplified.
  • Costs are reduced due to supply and warehouse inventories optimization based on data on sales seasonality, volume and geography.
  • System analytics can be used for commodity market research.

At the same time, businesses have noted that in order to prepare for the adoption of mandatory marking for new categories of goods, they have to resolve numerous issues and have sufficient resources to cover all the requirements, including:


  • Business processes design and update. Marking often requires tailoring current business processes or even developing new ones related to manufacturing, import and sale of goods, as well as disposal, claims for replacement and other processes. Moreover, it is not always possible to extrapolate solutions previously developed for another category of goods, as some products are quite peculiar in terms of deal-making, as well as transportation and storage.
  • IT expenses. Digital marking implies that all available data on each operation with goods is promptly transmitted to the state information system for marking (GIS MT) by circulation participants and/or electronic document flow operators. To achieve this, businesses should prepare in advance to interface their systems with GIS MT and elaborate scenarios to fix errors and technical failures.
  • Expenses for equipment (scanners, printers) and services. Goods acceptance is a key challenge for many marked goods market participants, especially for importers. In practice, any of the following three options can be selected: 1) trust-based acceptance, with no digital codes scanned, 2) partial acceptance, with a number of digital codes scanned, and 3) end-to-end acceptance, with digital codes of each item scanned. The first option is the easiest and least expensive, however it entails risks and implications, e.g., in case customs authorities find unmarked goods or goods with damaged marking. The second and third options require purchasing code scanning equipment or acceptance services, e.g., for a bonded warehouse.
Besides, digital marking affects the frequency and thoroughness of audits by Rospotrebnadzor, the tax and customs authorities, and other agencies supervising circulation of goods in the Russian market.

More details on how the customs authorities treat digital marking are provided below.

Marking as used by the customs

The customs authorities monitor whether those involved in the circulation of imported goods subject to mandatory marking comply with the legislation, which requires applying identification marks and entering reliable information on them into GIS MT.

In practice, the customs authorities efficiently use digital marking, e.g.:

  • The customs authorities refuse to release goods, if GIS MT does not respond or displays error messages in response to requests to reconcile data on identification codes in the goods declaration and in GIS MT. Such failures may result from technical errors, when a correct identification code is input into the goods declaration, but the number of characters input is incorrect (i.e., there are excessive symbols in the code).
Decision of the Moscow Region Arbitration Court of 24 December 2021 in case No. А41-40355/2021

  • The customs authorities refuse to release goods, if the goods declaration for a composite product not subject to marking (e.g., a car wheel) states identification codes for its components subject to marking (e.g., tires). However, the current legislation does not prohibit stating identification codes of components in a goods declaration. According to the Supreme Court of the Russian Federation, such codes are not excessive and cannot affect the ability to exercise customs control in relation to imported goods.
Determination No. 307-ЭС23-598 of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation of 26 July 2023 in case No. А56-6172/2021

At the same time, digital marking is not just a tool to identify violations and inefficiencies, it can be used by businesses or courts to resolve customs disputes, including those not directly related to marking.

A couple of cases are indicated below.
As various marking regulations are rapidly developed to embrace more and more categories of goods, importers must stay abreast of what is going on, keep up with the changes, and monitor new marking tools and opportunities to be used by the relevant authorities and businesses.
How we can help

Holding preliminary consultations, outlining legal requirements:
  • Giving general advice on the goods marking process. Performing preliminary assessment of the effect new requirements may have on your business
  • Outlining steps businesses might need to take to comply with the legislation

Laying out activities and processes your company will have to implement or adjust:
  • Indicating key business processes, document flow processes, internal controls affected by the marking system
  • Outlining key risks and challenges resulting from implementation of the marking system. Drafting a respective risk mitigation plan. Giving recommendations
  • Summarizing business processes, procedures and internal controls required to be implemented/streamlined/amended and the essence of proposed changes

IT systems diagnostics and tailoring
  • Customizing your IT systems to meet the new requirements, considering the specifics of the current IT systems, to implement business process steps subject to mandatory marking requirements
  • Drafting business requirements for the system to be developed
  • Designing a pilot system and a road map for its development and deployment

Authors:
  • Vladislava Gritskova
    Manager
    Global trade and Customs
  • Ekaterina Mazurova
    Senior
    Global trade and Customs
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