THE government was warned it may be squeezing smokers too hard ahead of the latest price increase for cigarettes in the latest budget.
Taxing the old reliable might not actually yield as much tax as was hoped, according to the Revenue Commissioners, who voiced concerns people would either buy their cigarettes abroad or purchase illegally.
In a pre-budget submission prepared for Minister for Finance Michael Noonan, the 50 cent price rise introduced was predicted to yield an extra €65.2 million in excise duty.
However, a note of caution was sounded that prices may well be reaching the point at which consumers will stop buying cigarettes legally and within Ireland.
The submission said: “It should be noted that the Revenue Commissioners have expressed concerns that increases in excise may not lead to increased yields, as consumers are further incentivised to exit the tobacco products market in Ireland.”
Over the previous two years, the sale of illicit cigarettes had begun to increase from 11% to 12% according to Revenue surveys.
Another 6% of people bought their cigarettes abroad while on holidays or on short trips designed specifically to stock up their supplies.
Ireland imposed the second highest tax on tobacco in the EU, after only the UK. Total excise on 1,000 cigarettes in Ireland is €316.49, according to the documents, as compared to just €82.32 in Bulgaria where the rate was lowest.
The submission also highlighted a remarkable falloff in the numbers of people smoking from 28.3% of the population in 2003 to 19.2% last year.
However, those that are smoking are more likely to be using roll your own tobacco, which is more “lightly taxed” and cheaper than cigarettes.
Consumption of loose tobacco has almost quadrupled since 2008, according to the Departmental records, which were obtained under FOI.
The submission also suggested that after plain packaging for cigarettes is introduced, manufacturers may try to start introducing cheaper products and that a minimum tax on a packet may then be needed.
“There is no evidence of a significant move in this direction [yet],” it said, “so an increase in the minimum excise duty is not a priority at this time.”
The Department said in a statement: “The minister is aware that increases in excise duty on tobacco have been testing the boundaries of diminishing returns.
“However, to date, the revenues from tobacco have been holding up and the increases provided for in recent years … have been realised and the projections for 2016 point to a similar outcome.
“In relation to the illicit trade in cigarettes the submission outlines that the current estimate is 12% of cigarettes consumed in Ireland in 2015 were illicit. While this is up on the 11% in 2014, it must be viewed in the context of a steady downward trend since 2009 [when rate was 16%].”
One of the other old reliables, alcohol, remained untouched in this year’s budget and there were no increases in excise duty.
Minister Noonan was presented with one option on how an extra €138 million could be raised by increasing taxes by 10 cents on beer, cider, and spirits, and 50 cents on a bottle of wine.
However, he decided to leave the rates as they were despite a call from the drinks industry for a cut of 15% in excise rates on all alcohol.
He faced particular pressure to cut excise duties on wine, which has the highest rate in the EU, and is out of kilter with rates for beer.
Those higher rates have had little impact on demand for wine however, with 80 million litres purchased in 2014, as compared to 44.3 million litres in 2000.