Financial Resolution No. 1: Tobacco Products Tax

I move:

(1) THAT for the purposes of the tax charged by virtue of section 72 of the Finance Act 2005 (No. 5 of 2005), that Act be amended, with effect as on and from 14 October 2020, by substituting the following for Schedule 2 to that Act (as amended by section 39 of the Finance Act 2019 (No. 45 of 2019)):


Rates of tobacco products tax

(With effect as on and from 14 October 2020)

Description of Product

Rate of Tax

Cigarettes …. .... .... …. …. …. …. ….

Rate of tax at—

(a) except where paragraph (b) applies, €356.39 per thousand together with an amount equal to 10.06 per cent of the price at which the cigarettes are sold by retail, or

(b) €414.24 per thousand in respect of cigarettes sold by retail where the rate of tax would be less than that rate had the rate been calculated in accordance with paragraph (a).

Cigars .... .... .... …. …. …. …. ….

Rate of tax at €414.861 per kilogram.

Fine-cut tobacco for the rolling of cigarettes ....

Rate of tax at €399.120 per kilogram.

Other smoking tobacco .... …. …. …. ….

Rate of tax at €287.812 per kilogram.

(2) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act 1927 (No. 7 of 1927).

Financial Resolution No. 1 provides for excise duty increases on tobacco products with effect from midnight tonight. The increase amounts to 50 cent, inclusive of VAT, on a packet of 20 cigarettes in the most popular price category, together with pro rata increases for other tobacco products. The price of a packet of 20 cigarettes in the most popular price category, assuming the full increase is passed through to the final retail price, will increase to €14. The excise duty component of this price will be €8.54 and the total tax, inclusive of VAT, will be €10.97, which represents 78.33% of the price of a packet of 20 cigarettes. The pro rata increase on the price of a typical pouch of rolling tobacco will increase by 70 cents to €19.40. The minimum excise duty rate on cigarettes is also increasing so that any pack of 20 that is priced below €11.50 will be subject to excise as if it was priced at €11.50.

Ireland is committed to a policy of high taxation on tobacco to encourage people to quit smoking, particularly younger people. The policy is working. In 2007, 29% of our people were daily smokers. By contrast, the Healthy Ireland Survey figures for 2019 show that the figure has fallen to 14%. Increasing tobacco products taxation is a key public health policy measure to continue this downward trend in smoking rates in Ireland and help us achieve a tobacco-free Ireland by 2025. In terms of revenue raising, the increase in tobacco products tax and the minimum excise duty is estimated to contribute €57 million in a full year.

The Labour Party will not be opposing this resolution. At what point is the benefit of the revenue raised by duties on tobacco outweighed by the increase in counterfeit tobacco, with effects on public health, criminality and all the rest? Is that discussion taking place within any Departments? We probably need to start thinking about that when it comes to this particular old reliable.

I will be brief. We oppose this. Smoking is a major public health problem. It kills large numbers of people and as a society we should do everything we can to discourage people from smoking, encourage them to break the addiction and get young people not to take up the habit in the first place. Nonetheless, a lot of people smoke and there are many reasons they do, such as stress. Advertising does not have as much impact as it used to, but a lot of people acquired this addiction when advertising was still around. I do not think people should be punished for an addiction through what is essentially a further regressive charge that disproportionately hits lower income families. We have traditionally opposed this and we will again. I will not go to the trouble of calling a vote, but we will indicate our opposition to the motion when it goes through.

I would like to amplify Deputy Smith's question. It is now almost a pro forma measure to add 50 cent or €1 to the price of cigarettes every year. Nobody objects to it because there is a compelling health issue, but smuggling is a real concern now. This does not just mean criminality. We do not know the contents of illegal cigarettes, which are extensively sold in housing estates throughout the country. There is a lot of interdiction of cigarettes but this is a really worrying issue. We need a much clearer messaging system to reach the 14% of our people who are heavy smokers and the cohort of occasional smokers who may be added to that. We are down to a core of people who need to be reached and helped by supplying free therapy, medication or whatever is needed to finally break that addiction. My colleague, Deputy Smith, is right. There has to be some limit to simply using pricing as a weapon. Education is important and we have very good education systems, but we are not reaching that final cohort. I am interested in hearing what the Minister is going to do about it.

I thank the Deputies. I will address Deputies Smith and Howlin at the same time as their questions had a similar message. Deputy Boyd Barrett also raises a similar point. I can provide figures on the illicit trade, but let us put it aside for a second. I was asked if there are other ways to reach people and whether this affects lower income households disproportionately.

The answer to both questions is "Yes". One of the things we have done in the budget is to increase the Healthy Ireland budget by €20 million. It has quite effectively tackled issues around alcohol, tobacco and addiction. I fully agree that it cannot just be about pricing. What we know about increasing pricing is that it works. It is an elastic product and the evidence from Ireland and around the world shows that pricing is a very effective way of reducing its usage. It is particularly effective among younger people, who are one of the groups we wish to target. I fully agree with the Deputies that it should not be the only measure. We need to invest in Healthy Ireland and preventative care.

People who do not wish to pay the tax may choose to purchase illicit cigarettes.

That is a fair point. I have figures before me relating to the illicit trade. Deputy Duncan Smith asked whether the Government has considered the point at which the benefit of the revenue brought in by duties on tobacco is outweighed by the increase in counterfeit tobacco and the associated effects. Health officials and finance officials consider the fact that when we increase the tax and the price goes up, it increases the volume of illicit trade. The briefing note I was provided for this session shows that the volume of illicit trade in roll-your-own tobacco is increasing. That is something we need to consider. Tackling it probably involves an investment in customs, justice and enforcement, as well as in Healthy Ireland and awareness.

On the facts and figures, the consumption of illicit and non-Irish duty paid cigarettes in 2018 stood at 22% of the market, which is a sizeable chunk. That figure comprises 13% illicit cigarettes and 9% illegally imported. In 2019, the Revenue Commissioners seized 13.4 million cigarettes worth approximately €8.59 million, which is a sizeable amount. The total cigarette consumption in Ireland last year is estimated to have been 2.769 billion cigarettes or 138 million packs. An estimated 15% of cigarette packs or approximately 415 million illicit cigarettes were consumed last year, representing a notional tax loss of €242 million. This is serious stuff. Furthermore, there has been an apparent increase in the illicit market for roll-your-own tobacco. It is estimated that illicit roll-your-own cigarette packs accounted for 12% of the market in 2019, at a cost to the Exchequer of €22 million in excise and VAT.

On the point made by Deputy Howlin, what is also relevant is that the estimated tax loss for cigarettes and roll-your-own tobacco is viewed as a notional loss in Exchequer tax revenue as it assumes that the illicit cigarettes consumed would displace the equivalent quantity of full duty-paid cigarettes, which is unlikely to be the case.

I am happy to provide the Deputies with any further briefings on the taxation side, the illicit trade, or indeed, my own area of Healthy Ireland. There is much good work that could be done. If Deputies Boyd Barrett or Duncan Smith have ideas about ways in which we could reach other groups and support them in public health ways, I and the Healthy Ireland team would be very interested to hear those ideas. If they wish to meet me in the coming days, I am more than happy to set something up.

Question, "That Financial Resolution No. 1 be agreed to", put and declared carried.