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Dearer tobacco ‘may not increase tax yield’

Increasing the cost of cigarettes in the Budget may not lead to an increased tax take as smokers turn to cheaper tobacco products from other countries, as well as e-cigrarettes, the Revenue Commissioners have warned.

A strategy paper prepared by the Department of Finance looks at the impact of adding extra taxes to packets of cigarettes or roll-your-own (RYO) tobacco.

It says: “The Revenue Commissioners have expressed a view that increases in excise may not lead to increased yields, as higher cigarette prices in Ireland could reduce demand due to greater incentives to purchase non-Irish duty paid tobacco products as well as to substitute to other products, such as e-cigarettes.”

According to the paper, Revenue seized approximately 48.2 million cigarettes worth about €32.8m in 2020.

This marked a huge increase on the 13.4 million seized cigarettes with a value of €8.6m in 2019.

In addition Revenue seized 7,189 kg of tobacco worth about €4.2m in 2020, up on the 3,557kg seized at a value of €2m the previous year.

In terms of alcohol, the paper notes that “the current pandemic has had contrasting impacts on the on and off (licence) trades”.

“Whereas the on-trade was closed for significant periods of time, and are now operating under Covid restrictions, the off trade has benefited from increased alcohol sales.”

It says it remains to be seen what effect the introduction of Minimum Unit Pricing will have on differences in prices across the border.

An analysis of off-trade price differences between Northern Ireland and the Republic shows that cans of beer, bottles of wine, whiskey and vodka are all cheaper in the North.

“While increased prices will result in marginal VAT increases on certain products, it is likely that a significant price differential between this State and the North could lead to an increase in cross-border trade, undermining the tax take from alcohol sales.”

The return of Duty Free shopping between Britain and Ireland as a result of Brexit has had little effect so far, thanks to Covid.

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