Hard Brexit to put duty-free shops back in business
Experts say opportunity to buy cheap alcohol and cigarettes will prompt special trips across Irish Sea
Consumers will make trips to the UK purely to buy duty-free alcohol and cigarettes on their return if there is a no-deal Brexit, Government experts fear.
The price of a packet of 20 cigarettes will be as little as €3 for people travelling from the UK into this country.
Dramatically cheaper spirits could also see the return of the "booze cruise", a common day trip across the Irish Sea before the EU banned duty-free sales within the single market 20 years ago.
The Department of Finance is warning that if a disorderly Brexit occurs the UK will be considered "a third country for the purposes of excise duty".
Officials predict this will prompt shoppers to take advantage of duty-free allowances and will "promote further fiscally motivated travel".
Latest figures show that 7.6 million passengers arrived in Ireland from the UK in 2017.
"For illustrative purposes, if 50pc of the total passengers arriving in Ireland from the UK availed of tax-free allowances within the fixed limits for cigarettes and spirits alone, this would have involved the import of 760 million cigarettes and 3.8 million litres of spirits," the advice document says.
It adds that this would cost the Exchequer €350m in a year even before the related economic impact on the Irish retail sector is taken into account.
In an advice prepared for Finance Minister Paschal Donohoe, the experts warn that the UK has not stated its position on duty-free sales in a post-Brexit environment.
The assumption was that the issue would be dealt with during the transition period after it leaves the EU. However, the UK is on course to crash out on October 31. In that event it will not be possible to apply excise duty or VAT on alcohol or cigarettes moving between the two countries.
The Government has already passed legislation which will allow it to block duty-free sales on goods moving between Ireland and the UK - but the House of Commons has no similar plan.
"If the UK applies a duty-free scheme post-Brexit, Ireland will not commence the section in the Brexit Omnibus Act and duty-free sales will therefore be possible for travellers moving between Ireland and the UK," the document notes.
Ireland has some of the highest excise rates on alcohol and tobacco in Europe.
The total intake for Revenue this year on alcohol is expected to be €1,268m.
Increases in excise from beer, cider and spirits are somewhat offset by a 3.6pc decrease in the receipts from wine. Excise duty on tobacco products has increased in 23 of the past 27 budgets.
The price of a pack of 20 cigarettes in the most popular price category now stands at €13, with a tax content of €10.15 split between €7.72 of excise duty and €2.43 in VAT.
The concept of duty-free began in Shannon in 1947.
However, it was abolished for travel within the EU in 1999.
A separate paper prepared by the Department of Finance notes that there is already an incentive for Irish consumers to buy tobacco in other EU countries, even with taxes.
"As Ireland is a high excise member state there is clearly an incentive for some smokers to bring in non-Irish duty-paid tobacco products from member states which have significantly lower tobacco taxes," the report says.
According to an IPSOS MRBI survey, the level of non-Irish duty-paid cigarettes has been broadly stable in the period 2016-2018 at 8-9pc. Mr Donohoe is also warned to be alert to the ongoing risk to Exchequer funds from cross-Border trade and smuggling.
Studies carried out for the Revenue Commissioners and the National Tobacco Control Office of the Health Service Executive indicate that some 13pc of cigarette packs consumed in the State in 2018 were illicit. The total cigarette consumption in Ireland in 2018 is estimated to be 3.7 billion (185 million packs).
Ross McCarthy of the Irish SME Association said an increase in smuggling is its biggest fear.