A likely sharp increase in duty-free shopping after Brexit will hit tax revenues and make it harder for the Government to use taxes to tackle high alcohol and cigarette use, officials have warned.
Any rise in purchases of cheaper alcohol and cigarette products by people travelling between the UK and Ireland may also lead to greater smuggling and necessitate increased customs checks between Ireland and the UK, they say.
The warnings on the potential effects of increased duty-free shopping are contained in a paper from Department of Finance officials on the customs and tax impacts of Britain's withdrawal from the European Union.
"Considering Ireland applies significantly high rates of excise duty there is an obvious likelihood that Irish consumers may avail of any new opportunities to buy duty free goods when returning from visits to the United Kingdom and visitors from the United Kingdom may act in a similar manner," the document says.
The duty-free sector should ensure customers comply with the allowable limits for purchases of such goods, it recommends. If this is not possible, then customs checks could be applied between the two jurisdictions.
With the re-emergence of duty-free shopping, the effectiveness of higher taxes to deter alcohol and tobacco use will also be weakened.
‘Health and welfare’
“Any increases in duty-free shopping would not only have fiscal consequences,” the department warns. “The increased availability of duty-free tobacco and alcohol to Irish consumers would weaken the effectiveness of fiscal policy as a tool in the area of health and welfare.”
The free movement of goods across borders will no longer apply if UK leaves both the EU and the European single market.
Once the UK becomes a “third country” outside EU structures, no duties will apply to goods brought from the UK to Ireland by consumers once their combined value does not exceed €430 for someone aged above 15 or €215 for someone below 15.
Under rules on bringing goods bought in other EU countries into Ireland, no extra VAT or duty is charged on imports once such taxes have already been paid in the country in which the goods were bought.
However, there are restrictions on the amounts of alcohol and tobacco that can be brought into the country for personal use.
The maximum allowed for personal use is 800 cigarettes, 10 litres of spirits, 20 litres of “intermediate products” such as sherry and port, 60 litres of sparkling wine, 90 litres of normal wine, and 110 litres of beer.
Policing delays
The limits for goods brought from non-EU countries are much tighter, but no duty is levied. When the UK leaves the EU, the allowable levels of imports will be 200 cigarettes, one litre of spirits, two litres of “intermediate products”, four litres of wine and 16 litres of beer.
However even with these stricter limits, the “policing of indicative limits for passengers would be very difficult for Revenue to manage and may cause delays in airports and ports”, the department says.
“It is worth noting that . . . duty-free shops may only be situated at a port or airport. Nevertheless should duty free be available to travellers arriving from the United Kingdom it would impact indirect tax revenues very significantly.
“Lower price levels in the UK as a result of trade, exchange rate or tax policy measures may cause consumers to source less expensive product outside of the State,” the paper states.
“This may have the effect of consumers exceeding personal allowances for goods imported, therefore increasing the risk of smuggling and illicit trade, which may in turn impact on the exchequer and consequently impose an increased requirement for Revenue resources.”