I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to meet Ireland's obligation, as a member of the European Communities, to introduce with effect from 1st January, 1978, the Community system of levying excise duty on cigarettes. The Community system was introduced in 1973 in all member states except this country and Britain who during the accession negotiations were given until 1st January, 1978, to change from their traditional system. This postponement was allowed because of what was involved in changing to the Community system. Both countries have been taxing by weight of the raw tobacco, whereas the Community system involves charging on the manufactured cigarettes an excise duty which combines a specific element calculated at a flat-rate per cigarette, and, secondly, with an ad valorem element proportionate to the retail price of the product.
Each member state is free to decide, within upper and lower limits, the precise combination of flat-rate and of proportional duty it will apply. It is, of course, free to determine the actual rates under each of these elements. The Community, however, aims at progressively narrowing the gap between the upper and lower limits so as to achieve, in the interest of facilitating trade within the Community, a larger degree of harmonisation of the structure and basis of charge to the duty in all member states. The first stage of harmonisation which commenced in 1973 provided upper and lower limits on the specific element to be applied by the member states of 75 per cent and 5 per cent of total excise duty. Discussions are at present proceeding with a view to setting narrower limits for the second stage which will probably commence in July next year.
The structural change required to comply with EEC obligations will of itself change the relative impact of taxation in Ireland on different sizes and qualities of cigarettes and so will affect to some extent the market pattern and consumer choices. The flat-rate element in the Community system, because it is the same on all cigarettes, has the effect of narrowing the spread of cigarette retail prices, while the ad valorem element increases with higher prices and consequently facilitates a wider retail price spread. For the reasons I will now indicate, we will be applying a relatively high flat-rate element and this will result in a narrower price spread on our market.
In implementing this new excise duty system, it is necessary to achieve a combination of the tax elements which will meet the interests not only of revenue, but also take account of the position of the Irish industry. The Irish tobacco manufacturing industry, which currently employs some 2,200 people, has been influenced by the form of tobacco duty prevalent over many years. The impact of the essentially different composite taxation system required by the EEC will inevitably cause significant changes in the market pattern, and it is important that, at least in the initial stages, the resultant difficulties should not be compounded for the Irish industry by the adoption of such combination of the flat rate and proportional elements as could be prejudicial to their competitiveness. With this consideration in mind Ireland has, during the discussions in the EEC on the proposals for a second stage of tobacco tax harmonisation, indicated unwillingness to agree to any appreciable lowering of the upper limit for the percentage of total taxation to be attributed to the flat-rate element.
The precise combination of the elements will be applied here from 1st January, 1978, is at present being considered and an announcement will be made shortly. The rates for each element will be calculated in such a way as to preserve the revenue yield. Our Community obligations in regard to the structural harmonisation of excise duty on tobacco products extend only to cigarettes. However, as it would be inconvenient both to manufacturers and to the Revenue administration to maintain, in conjunction with a post-manufacture excise on cigarettes the existing pre-manufacture excise arrangements on tobacco for manufacture of other products, the Bill provides for the levying of an end-product duty, which will be proportionate to the weight, on pipe tobacco, cigars, "roll-your-own' tobacco and chewing tobacco. This change, which is essentially an administrative one, should not result in any price increases.
Deputies will notice that snuff is not included in the scope of the Bill and, accordingly, it will not be excisable with effect from 1st January, 1978. My concern in exempting snuff from duty is to protect Irish manufacturers from possible effects of the decision that, from that same date, the duty on snuff in Britain and Northern Ireland will cease. If the British decision were not reciprocated here, a large price differential would result, which would expose our manufacturers to risk.
Under the new system, excise duty will be levied at the point where the manufactured goods are invoiced to traders; at present the duty is levied on the unmanufactured tobacco leaf at the point where it leaves the bonded warehouse for the factory. Following from this change, section 3 of the Bill provides that the period of deferment allowed to manufacturers for payment of duty will run from the new point of charge of the duty, but in order to minimise the revenue shortfall over the financial year as a whole a "catch-up" mechanism will apply which curtails deferment arrangements for the final month, making due before the end of December half of the payment in respect of goods released from bond in that month.
Deputies may also be interested in the provisions of section 6 which deals with duty-paid tobacco stocks held by tobacco manufacturers on 1st January, 1978. In order to avoid double duty payment on these stocks, it is proposed that the duty charged on the stock then held be offset against the duty payments due from the manufacturer at the end of January. This will enable the new system to operate fully from 1st January, 1978, establishing a clean break from the existing system.
The provisions of the Bill are described in some detail in the accompanying explanatory memorandum. I shall be glad, however, in the course of this debate to reply to any points on which Deputies may wish to have further clarification. I commend the Bill to the House.
