Government warned against increasing excise on cigarettes

Increasing taxes on “old reliables” such as cigarettes in the forthcoming budget could be counterproductive, the Government has been told.

In a strategy paper prepared by officials in the Department of Finance, the coalition is advised that increasing the cost of cigarettes in the forthcoming budget could encourage more smokers to source products outside of the State.

It said that Revenue had warned increases in excise might not lead to increased yields, as higher cigarette prices in Ireland could reduce demand due to greater incentives to purchase tobacco products from other jurisdictions as well as to substitute with e-cigarettes.

Rates

The Republic has some of the highest rates of duty on tobacco products, including on cigarettes.

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Excise rate increases of €0.50 on a pack of cigarettes have been implemented in each of the last six budgets. This has meant the average price of cigarettes has increased by about 24 per cent between March, 2017 and March, 2021.

“As a high excise member state, there is clearly an incentive for some smokers to bring in non-Irish duty-paid tobacco products into Ireland from other Member States which have significantly lower tobacco taxes,” the paper says.

Revenue is forecasting that total yields from tobacco products will hit €1.26 billion this year. Revenue seized 48.2 million cigarettes with a value of €32.8 million last year. This compares to 13.4 million cigarettes worth €8.6million in 2019.

The paper says that currently there is little incentive to bring in cigarettes from the North as they remain cheaper here.

Elsewhere, the Tax Strategy Group says that due to the Coronavirus pandemic it has not been possible to fully assess the full impact of changes to the €50,000 relief for bookies introduced in Budget 2020, or the increase in betting duty included in the previous year’s budget.

The group says Revenue has expressed concerns with increasing the betting duty relief amount further saying it would only benefit a very limited number of operators while adding to the State Aid compliance challenged associated with it.

Reliefs

Turning to alcohol and while increased excise reliefs are seen as having boosted microbreweries, the group’s strategy paper advises against further changes.

“As the microbrewery relief is already set at the maximum permissible rate under EU rules and the current production threshold ensures that all microbreweries are included, there is no compelling rationale to enhance this scheme further at this time,” it says.

Lastly, the group's paper also put forward the option of a 7.5 per cent reduction in alcohol excise in Budget 2022, as suggested by Drinks Industry Group of Ireland. DIGI claims the move would help the drinks and hospitality sector to rebound following the pandemic and boost employment levels.