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Illicit Trade in Tobacco

Dáil Éireann Debate, Wednesday - 3 June 2020

Wednesday, 3 June 2020

Questions (108, 109, 110, 111, 113, 114, 115)

Louise O'Reilly

Question:

108. Deputy Louise O'Reilly asked the Minister for Finance the estimated cost to the Exchequer on an annual basis of illegal trade in tobacco; the additional measures planned to counteract such illicit trade; and if he will make a statement on the matter. [9634/20]

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Louise O'Reilly

Question:

109. Deputy Louise O'Reilly asked the Minister for Finance the percentage of illicit tobacco products and or non-Irish-paid tobacco here in tabular form; the percentage of these products that are cigarettes, illicit whites or counterfeit; the relevant applicable breakdown for same; and if he will make a statement on the matter. [9635/20]

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Louise O'Reilly

Question:

110. Deputy Louise O'Reilly asked the Minister for Finance the number of persons prosecuted for cigarette and or tobacco smuggling in 2019 and to date in 2020; the additional resources and equipment being provided to the Revenue Commissioners to tackle the issue; and if he will make a statement on the matter. [9636/20]

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Louise O'Reilly

Question:

111. Deputy Louise O'Reilly asked the Minister for Finance the estimated time for the tax rate on roll-your-own tobacco to reach equivalence with manufactured cigarettes; and if he will make a statement on the matter. [9637/20]

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Louise O'Reilly

Question:

113. Deputy Louise O'Reilly asked the Minister for Finance the estimated revenue that would be raised by adding 50 cent of duty to a packet of 20 cigarettes with proportionate increases on other tobacco products. [9639/20]

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Louise O'Reilly

Question:

114. Deputy Louise O'Reilly asked the Minister for Finance the estimated increase to a pack of cigarettes if an annual tax escalator of 5% and the rate of inflation was introduced; and if he will make a statement on the matter. [9640/20]

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Louise O'Reilly

Question:

115. Deputy Louise O'Reilly asked the Minister for Finance the status of actions taken as part of the WHO Protocol to Eliminate Illicit Trade in Tobacco Products; and if he will make a statement on the matter. [9641/20]

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Written answers

I propose to take Questions Nos. 108 to 111, inclusive, and 113 to 115, inclusive, together.

I am advised that each year since 2009, Revenue, in conjunction with the HSE’s National Tobacco Control Office, has commissioned Ipsos MRBI to conduct independent market research among smokers about the source of their cigarettes. The purpose of this research is to estimate the volume of non-Irish duty paid cigarettes being consumed in Ireland. Since 2013, this has been complemented by an additional survey on roll your own tobacco. The results of the 2018 survey was published by Revenue in May 2019 and can be viewed on the Revenue website at

https://www.revenue.ie/en/corporate/information-about-revenue/research/surveys/tobacco-consumption-survey/index.aspx .

The key findings of the 2018 survey were that:

- 13% of the cigarette packs held by smokers surveyed were classified as illegal.

- a further 9% of the packs are found to be legal Non-Irish Duty Paid.

- 21% of pouches of fine cut tobacco for the rolling of cigarettes (roll-your-own) consumed were illicit.

Of the 13% of cigarette packs found by the survey to be illegal:

- 78% were classified as contraband (i.e., normal commercial brands of cigarettes bought duty paid or duty free outside the country and smuggled here).

- 21% are classified as “illicit whites” (cigarettes manufactured for the sole purpose of being smuggled into and sold illegally in another market).

- 1% are classified as counterfeit packs (cigarettes manufactured without authorisation of the rightful owners, with intent to deceive consumers and to avoid paying duty).

The survey included an estimated potential loss in 2018 to the Exchequer from illegal cigarettes of €211 million in Excise and VAT. However, this was viewed as a notional loss in Exchequer tax revenue as it assumed that the illegal cigarettes consumed would displace the equivalent full tax paid quantity of cigarettes, which is unlikely to be the case.

In relation to prosecutions, I am informed by Revenue that in 2019 33 prosecutions were brought for cigarette or tobacco smuggling and seven convictions secured, one on indictment and six on summary conviction, resulting in fines totalling €15,000 being imposed.

In addition, 62 prosecutions were initiated for other cigarette and tobacco-related offences in 2019. 55 convictions were secured, three on indictment and 52 on summary conviction, resulting in fines totalling €94,000 and two prison sentences – one consisting of 18 months imprisonment and the other consisting of 24 months imprisonment with 14 months suspended.

To date in 2020, 14 prosecutions have been brought for cigarette or tobacco smuggling and four convictions secured, three on indictment and one on summary conviction, resulting in fines totalling €2,500 being imposed.

In addition, 19 prosecutions have been brought to date in 2020 for other cigarette and tobacco-related offences. 15 convictions have been secured to date, one on indictment and 14 on summary conviction, resulting in fines totalling €26,000 and 240 hours community service.

I am advised by Revenue that it uses a range of measures designed to identify and target those involved in the smuggling, supply or sale of illicit tobacco products, with a view to disrupting the supply chain, seizing the products and, where possible, prosecuting the persons involved. Revenue’s strategy involves developing and sharing intelligence on a national, EU and international basis, the use of analytics and detection technologies and ensuring the optimum deployment of resources on a risk-focused basis.

Revenue and An Garda Síochána work together on an ongoing basis in acting against tobacco crime, and both organisations cooperate closely with their Northern Ireland counterparts, in the framework of the North-South Joint Agency Task Force, to target the organised crime groups that are responsible for a large proportion of this form of criminality. In addition, Revenue works closely with the relevant authorities in other jurisdictions, the European Anti-Fraud office, Europol and other international organisations, including the World Customs Organisation, in the ongoing programmes of action at international level to combat tobacco crime.

Key actions undertaken by Revenue in this area include:

- Using risk analysis and profiling to screen cargo, vehicles, baggage and postal packages.

- Post-importation intelligence-based operations and random checks at retail outlets, markets and private and commercial premises.

- Investing in new resources, such as a new mobile x-ray scanner which uses imaging technology to analyse vehicles as well as shipping containers. This enables Revenue to identify suspicious consignments quickly and efficiently, with minimum impact on legitimate trade.

- the setting up of the National Profiling Centre, the development of the National Intelligence Management System and the setting up of specific senior management groups at Principal Officer and Assistant Principal levels to give a clearer strategic and operational focus to Revenue’s work in the enforcement area, including tobacco fraud.

Revenue is a fully integrated tax and customs administration and so it is not possible to disaggregate resources deployed exclusively at any given time on tobacco related enforcement work. Revenue currently has approximately 2,000 staff engaged on activities that are dedicated to targeting and confronting non-compliance. These front-line activities include anti-smuggling and anti-evasion, investigation and prosecution, audit, assurance checks, anti-avoidance, returns compliance and debt collection. Resources are allocated to these different aspects of enforcement and compliance work are continuously adjusted in response to changes in the level of risk in different sectors.

The Government has also ensured through the Finance Acts over recent years that Revenue has the necessary statutory powers to tackle the illicit tobacco trade and I am open to considering any proposals for further legislative changes as needed. Legislative reforms made over recent years in this area include:

- The Finance Act 2012 clarified the legal basis for Revenue officers to open and examine the contents of postal and courier packets that are reasonably believed to contain untaxed excise products.

- The Finance Act 2013 introduced new offence and forfeiture measures relating to the illicit production of tobacco and strengthened the offence provisions relating to the sale or delivery of unstamped tobacco products.

- The Finance (No. 2) Act 2013 provided that a person suspected of an offence of dealing in, or with, unstamped tobacco products must provide information to a Revenue Officer or a Garda and may be required to present any tobacco product concerned for examination, and makes provision for search by a Revenue Officer or Garda of any bag or other receptacle that he or she reasonably believes to contain tobacco products that are concerned in the offence.

I am advised by Revenue that if tax on roll-your-own tobacco was increased using an annual tax escalator of 5% it would take approximately seven years for the tax rate on roll-your-own tobacco to reach equivalence with manufactured cigarettes. That is providing that there were no further increases in tax on manufactured cigarettes.

The Ready Reckoner published on the Revenue website at https://www.revenue.ie/en/corporate/documents/statistics/ready-reckoner.pdf shows on page 24 the potential yield from increased taxes on packets of cigarettes. I am advised by Revenue that if tax on a pack of 20 cigarettes was increased using an annual tax escalator of 5% and the rate of inflation of -0.1% (April 2020), the most popular price category of cigarettes priced at €13.50 would increase by €0.52.

Overall responsibility for the WHO Protocol to Eliminate Illicit Trade in Tobacco Products rests with my colleague, the Minister for Health. However, I am in a position to advise the Deputy on the traceability and security feature systems intended to secure the supply chain of tobacco products, which is one of the key elements of the Protocol. The EU Tobacco Products Directive (2014/40/EU), which gives effect to elements of the Protocol provides for the introduction of a mandatory ‘traceability’ system alongside a ‘security feature’ system for tobacco products supplied on EU markets. The traceability and security features systems required by the Directive were implemented by Revenue in 2019 in respect of cigarettes and Roll-Your-Own tobacco. These systems are to be extended to all other tobacco products in May 2024. The ‘traceability’ system requires that all cigarettes and Roll-Your-Own tobacco products manufactured in, or imported into, the EU must be marked with what is referred to as a ‘unique identifier’. The unique identifier is scanned at each stage in the legitimate tobacco supply chain by the importer, wholesaler or distributor concerned using specialised equipment. The Deputy will appreciate that tracking the distribution of legitimate, tax paid tobacco products through the domestic supply chain will not assist in tackling our illicit tobacco problem. Tax paid tobacco is not the problem and there is no incentive to divert Irish tax paid tobacco onto other markets or to misreport its distribution for the purpose of such diversion.

The EU Commission has noted that the data collated from the traceability system will give an EU-wide picture of the quantity of tobacco products supplied to each member state market, up to the last point before retail sale. All cigarettes and Roll-Your-Own tobacco products are also, under the Directive, required to carry a security feature which verifies the authenticity of the product concerned. The tobacco tax stamp is used as the security feature in Ireland and several other EU states. Revenue has also granted approval for an alternative security feature to be applied to Irish duty-free tobacco products.

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