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Monday, July 16, 2012
FIVE-and-a-half billion cigarettes are smoked in this country each year, allowing the public purse to draw €1.5bn from the trade.
However, the national consumption estimates dropped by 700m in 12 months. This was because of a reduction in daily smoking habits, particularly among younger people.
Yet despite the revenues earned off the buying habits of smokers, there is a persistently strong black market business undermining the exchequer’s earnings.
Figures released under the Freedom of Information Act show that for every packet of 20 bought here the State estimates it loses €6.69 because of a thriving and parallel market for illegal brands.
One in seven smokers held out an illegal packet when they were stopped and interviewed about their habit — 25% of this cohort were from Poland, Central, or Eastern Europe.
All together, this black market business in counterfeit and contraband products is costing the exchequer €249m in lost taxes.
These figures are based on the most recent research carried out by Ipsos MRBI on behalf of the Revenue Commissioners to assess the size of the problem its customs officers are facing.
The details of these surveys were released under the Freedom of Information Act. They show that despite high-profile seizures in recent years the market is still strong and relatively steady.
The size of the illegal imports only dropped slightly in recent years. The cost to the State of this market was valued at €285m in 2009 and €249m in 2010. Revenue estimated it accounted for 14% of tobacco sales in 2010.
The figures suggest the total trade has been beefed up because people who are not Irish citizens are keen to source products from other channels.
"[The illegal trade] accounts for 133,968 smokers. Splitting this figure by nationality we found 101,167 were Old Europe (including Ireland) and 32,801 were New Europe smokers.
"Using these figures we estimate 745,322,720 illegal cigarettes are consumed in Ireland per annum," the summary of survey findings provided to the Revenue Commissioners said.
Retailers Against Smuggling have said the size of the market is undermining legitimate shops and sellers and it has called for minimum fines to deter criminals from targeting Ireland.
In response to a recent seizure, its spokesman Benny Gilsenan said criminal gangs had an "iron grip" on the Irish market.
"A minimum fine would deter criminal gangs from targeting Ireland... we hope that the Government will consider the introduction of a minimum fine to hit criminals where it affects them most, in the pocket," he said.
When customs officers swooped on more than €14m of illegal cigarettes at Dublin Port in April, the brand in question, Golden Eagle, was a contraband variety. Other illegal packets seek to mimic legitimate brands.
However, the Revenue figures show that the contraband variety (illegal imports, usually goods on which no tax has been paid) accounted for a much higher proportion of illegal items than counterfeit ones (copies of a product, usually illegal).
However, there was a "statistically significant" change between 2009 and 2010 when the relatively low volume of counterfeit packets rose from 1% to 3%.
Customs officers have increasingly used new surveillance powers to spy on smugglers and an independent report to the Government showed that tracking devices had proven very successful in monitoring the importation of large shipments.
It recently emerged that at least 35m illegal cigarettes have been discovered in the past three years by officers using tracking devices. But the Revenue’s analysis of the illegal trade also shows many packets are not being smuggled in the type of big-shipment deliveries identified in seizures.
Just 10% of packets without a tax stamp identified in the Revenue survey were bought from a shop.
Although the sample size for this portion of the research was low (fewer than 100) the majority of counterfeit or contraband packets were bought abroad by the smoker themselves or a friend.
In addition to the illegal trade in brands where no tax had been paid, the legal cut price options from abroad are also undermining potential revenues from cigarette duty.
These included boxes bought overseas for cheaper prices and brought here for personal consumption.
According to the Revenue’s research, €186m was lost because smokers managed to buy less expensive packets abroad.
As part of the Revenue survey, the market research firm, Ipsos MRBI, examined the tax stamp on the packets of those it interviewed.
In the case of Irish smokers, 91% of the cigarettes had duty paid in Ireland, 3% were sourced in Spain and 3% originated in Poland. This hardly changed from the 2009 survey.
By comparison, people living here who have come from everywhere east of Germany bought far fewer of their boxes in this country.
The survey showed that 35% of the packets examined had an Irish tax stamp and 33% had a Polish one. A further 9% were from Lithuania and smaller portions came from Latvia, the Czech Republic, and Slovakia.
This represented a change from 2009 when 42% of cigarettes bought by these people were sourced in Ireland.
Almost 25% of Eastern and Central European smokers brought back their packets themselves while abroad. This is perfectly legal despite the money lost to the Irish State.
Because of the free market across the EU, the chairwoman of the Revenue Commissioners, Josephine Feehily, has told the Public Accounts Committee it proved impossible to police a 800-cigarette cap on people arriving back from holidays.
"In the context of our membership of the European Union, people can bring duty-paid tobacco from other member states for their personal use," she told the committee.
"And while we have an indicative guideline of 800 cigarettes, it is only indicative. And what the law says is you can bring in tobacco for your personal use.
"And there is very significant case law in the European Courts and, indeed, domestically that suggests that the burden of us establishing that cigarettes are not for personal use is very high. So people can bring in many, many thousands legally, legitimately into the country for their own use."
Revenue said that despite the persistent portion of the market that was fed by criminals, its efforts were keeping it from expanding.
"The findings reflect the result from the 2009 research, which also found that 14% of all smokers had an illegal packet, and suggest the penetration of illegal cigarettes is being contained," it said.
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