Fuel-Marking Programs: Helping Governments Raise Revenue, Combat Smuggling, and Improve the Environment

Peer reviewed by Liz Fischelis and Hongwei Zhang

Many countries face national fuel supply chain problems, which include smuggling, adulteration and dilution of fuels, and outright theft, all of which deprive governments of much needed tax revenue. An example is the Philippines which, due to fuel smuggling, has adulterated fuel products in its supply chain.

According to experts, this costs the country as much as $750 million annually in tax revenue. Meanwhile, other Asian countries that subsidize fuel, such as Bangladesh, Indonesia, and Malaysia, are vulnerable to losses when their low-priced fuels are smuggled to countries that charge international market prices, depriving governments of the intended benefits of providing subsidized fuel.

Governments worldwide have developed various fuel taxation programs to help fund essential services that benefit their citizens. In many cases, these taxes represent a significant portion of a country’s total tax receipts, especially in the case of lower-income countries. However, when taxes and/or subsidies result in major fuel price discrepancies, they offer the temptation to take advantage of price arbitrage by perpetrating fuel fraud. Typically, such schemes fall into two categories: tax evasion and subsidy abuse. For example, higher-priced, nonsubsidized, and taxed fuels are diluted with smuggled lower-priced 1 Philippine Daily Inquirer. 2014. With Oil Smuggled in, Government Waves Tax Revenues Goodbye. 6 March. or subsidized fuels. This affects governments irrespective of their fuel policies, with tax evasion on higher-priced fuels, and subsidized fuels being diverted from their intended beneficiaries. Overall, the result of fuel smuggling and fraud is significant global financial losses, probably totaling tens of billions of dollars annually.

To prevent fuel fraud, governments have developed comprehensive fuel-marking programs, using advanced technology molecular markers and sophisticated management systems that result in timely, actionable intelligence, allowing governments to mitigate tax evasion and subsidy abuse, minimize financial losses, and raise revenues.