THE government was warned by the Revenue Commissioners that increasing the duty on cigarettes in the latest budget might not yield any extra revenue.
The warning came in a pre-budget submission to Finance Minister Paschal Donohoe which suggested the price of a packet of cigarettes was getting so high that smokers would look outside of Ireland when buying.
According to the Revenue Commissioners, a 25-cent price hike could even have caused a decrease in the amount of tax taken in.
The Revenue’s “ready reckoner” suggested that a possible 25-cent increase could at best bring in an extra €31 million but equally could see revenue decline by €18 million.
The submission said: “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.”
Mr Donohoe was told by officials that any predictions on tax taken from smokers were therefore “highly tentative”.
The minister went ahead with a 50-cent hike for the third year in a row cementing Ireland’s position as having the highest rate of duty on cigarettes in the European Union.
Duty on 1,000 cigarettes was €336.15 according to the departmental submission as compared to just over €85 in both Lithuania and Bulgaria.
The memo said that around €170 million was being lost to the Exchequer through a combination of illicit cigarettes and those bought legally elsewhere.
It explained: “Results … indicate that 10% of cigarette consumption in Ireland in 2016 was illicit, while an additional 8% of cigarette consumption was legal product purchased abroad.”
The Department of Finance were lobbied by two tobacco companies, according to the documents.
Imperial Tobacco asked that minimum excise duty on cigarettes not be increased while Japan Tobacco Ireland — who sell brands like Silk Cut and Benson & Hedges — asked the government to commit to “a multi-year plan of modest, predictable excise increases”.
Both the Irish Heart Foundation and Irish Cancer Society urged a 50-cent increase along with a levy on the profits of tobacco manufacturers.
The anti-tobacco NGO ASH Ireland meanwhile suggested a €1 increase per packet and an additional 50-cent “litter levy” for every pack sold.
A spokesman said the Department of Finance was aware the latest price hike could cause a “disproportionate change in consumer behaviour”.
Tax receipts from smokers had finished €56 million down on forecast in 2016 but this year seemed more likely to come in on target, according to the Department.
The spokesman said: “While overall yields have continued to rise over the past three years, issues such as front-loading and projected decreases in smoking prevalence have made accurate forecasting more problematic.
“We are happy that the forecast is solid and if there is a more dramatic shift in the level of consumption … then that will be very welcome from a health perspective, which is the overriding policy objective.”
According to the submission, smoking rates in Ireland are plummeting.
In 2003, 28.3% of the population smoked which by 2016 had fallen to 18.7%. Tobacco Free Ireland — an action plan from the Department of Health — is targeting a reduction to less than 5% by 2025.