REVENUE have warned the government that it could be difficult to collect the planned tax on sweetened drinks that is set to be introduced next year.
A briefing document for Finance Minister Michael Noonan has explained how the tax could generate in excess of €85 million a year, if charged at a rate of 10 cents per can.
However, the submission warns that this revenue will likely collapse as customers switch to untaxed diet drinks or other options.
The Revenue Commissioners have also warned of “significant tax administration difficulties” and said it would not be as easy to collect as duty on cigarettes and alcohol.
They said collection, traceability and ensuring compliance with the tax all presented problems not seen in existing duties and levies.
The tax is due to be introduced next year and will coincide with a similar levy the UK government plans to impose in 2018.
A pre-budget submission obtained under FOI has explained how the sugary drinks tax will work by targeting products with more than 5 grams of sugar per 100 millilitres. Most soft drinks and energy drinks have more than double that.
Excluded from the levy however, will be fruit juices and dairy drinks with high sugar counts, as well as diet drinks.
Revenue have expressed concerns about difficulties in categorising different drinks however, and even the type of sugar that they contain.
They said: “Where the source (natural or added), or quantity, of sugar present in a drink determine its liability to tax, this information should be discernible and objectively verifiable to taxpayers and Revenue.
“For example, if the tax applies to drinks containing added sugars, but not naturally occurring sugars, difficulties in administering the tax will arise where … [this] cannot be immediately and objectively distinguished.”
Revenue said liability for the tax should fall to manufacturers and importers, which would mean only a limited number of people would have to pay up.
This would avoid the tax being passed all the way down the line to individual shops and consumers, and creating headaches in collecting it.
The Revenue Commissioners also said that the UK was undertaking an “in depth consultation period” for their tax and that Ireland should effectively borrow whatever approach they took.
They said: “Given how integrated the UK and Ireland markets for soft drinks are, it is advisable from a Revenue perspective that Ireland adopt a similar tax structure and time period for introduction as the UK.”
The submission to Minister Noonan also reiterated how it was crucial that the tax was introduced at the same time as in the UK, and that the levies matched up closely.
The memo says: “From an Irish perspective, the imposition of a … tax in the UK removes concerns that an Irish tax would encourage cross-border trade, provided that the taxes are set at similar levels and implemented at similar times.”
The submission also says the government will need to be careful when introducing the tax that it does not fall foul of EU law.
It explained: “There may be a challenge to the sugar-sweetened drinks from an EU state-aid rules perspective.”
The memo explained that the tax would have to be designed so as it is not seen to favour soft drinks and juices with no added sugar, and sweetened dairy products.
It said: “Sugar-sweetened drink taxes in other member states have thus far not been challenged on state aid grounds by the [EU] Commission.”
A series of possible price increases were also presented to Minister Noonan ranging from just 1 cent a can up to 20 cents.
A 10 cent increase – which mirrors proposals in the UK and appears the most likely option – would bring in an additional €84.5 million to the Exchequer in a year.
However, this big revenue spike will be unlikely to last as customers switch to different drinks and manufacturers looked at cutting sugar content.
The submission said: “Overall it is important to recognise that that yield projections are based on current consumption of sugar-sweetened drinks, and given the health objective of reducing such consumptions, yields could fall very rapidly upon implementation, as occurred with the plastic bag levy.”
In a statement, the Department of Finance said the sugar drink levy had been promised in the programme for a partnership government, would contribute to public health goals, and provide a new source of revenue for public spending.
They said a public consultation had ended earlier this month with thirty submissions received to help ensure that the tax was as effective and as fair as possible.
They said: “Officials … are currently collating and analysing the responses, which will then be taken into account when developing the tax, including at which point in the supply chain these products will become liable for tax.”
Brief for Minister Noonan